PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 13, 2002)
$2,000,000,000 CIT INTERNOTES'r'
[CIT LOGO]
CIT GROUP INC.
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We may offer to sell our CIT InterNotes'r' from time to time. The specific
terms of the notes will be set prior to the time of sale and described in a
pricing supplement. You should read this prospectus supplement, the accompanying
prospectus and the applicable pricing supplement carefully before you invest.
We may offer the notes to or through agents for resale. The amount we expect
to receive if all of the notes are sold to or through the agents is from
$1,996,000,000 to $1,940,000,000, after paying agent discounts and commissions
of between $4,000,000 and $60,000,000. We also may offer the notes directly. We
have not set a date for termination of our offering.
The agents have advised us that from time to time they may purchase and sell
notes in the secondary market, but they are not obligated to make a market in
the notes and may suspend or completely stop that activity without any notice at
any time. Unless otherwise specified in the applicable pricing supplement, we
will not list the notes on any stock exchange.
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INVESTING IN THE NOTES INVOLVES CERTAIN RISKS, INCLUDING THOSE DESCRIBED IN
THE 'RISK FACTORS' SECTION BEGINNING ON PAGE S-6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE NOTES OR PASSED ON THE ADEQUACY
OR ACCURACY OF THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS OR ANY
PRICING SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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JOINT LEAD MANAGERS AND LEAD AGENTS
BANC OF AMERICA SECURITIES LLC INCAPITAL LLC
AGENTS
BMO NESBITT BURNS CORP. CHARLES SCHWAB & CO., INC.
EDWARD D. JONES & CO., L.P. FIDELITY CAPITAL MARKETS,
a division of National Financial Services, LLC
RBC CAPITAL MARKETS SALOMON SMITH BARNEY
UBS PAINEWEBBER INC. WACHOVIA SECURITIES
Prospectus Supplement dated November 1, 2002.
InterNotes'r' is a registered servicemark of Incapital Holdings LLC
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE
PRICING SUPPLEMENT. WE AND THE AGENTS HAVE NOT AUTHORIZED ANYONE ELSE TO PROVIDE
YOU WITH DIFFERENT OR ADDITIONAL INFORMATION. WE ARE NOT MAKING AN OFFER OF
THESE NOTES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING
PROSPECTUS OR THE PRICING SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE
DATE ON THE FRONT OF THAT DOCUMENT.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
About This Prospectus Supplement And The Pricing
Supplements............................................... S-1
Incorporation By Reference.................................. S-2
Summary..................................................... S-3
Risk Factors................................................ S-6
Description Of CIT Group Inc................................ S-14
Selected Consolidated Financial Information Of CIT Group
Inc....................................................... S-15
Use Of Proceeds............................................. S-19
Capitalization Of CIT Group Inc............................. S-20
Description Of Notes........................................ S-21
Registration And Settlement................................. S-27
Material U.S. Federal Income Tax Considerations............. S-30
Employee Retirement Income Security Act..................... S-34
Plan Of Distribution........................................ S-35
Legal Matters............................................... S-36
Other General Information................................... S-37
PROSPECTUS
CIT Group Inc............................................... 3
Ratio Of Earnings To Fixed Charges.......................... 14
Special Note Regarding Forward-Looking Statements........... 15
Use Of Proceeds............................................. 16
Description Of Debt Securities.............................. 17
Plan Of Distribution........................................ 23
Experts..................................................... 24
Legal Opinions.............................................. 25
Where You Can Find More Information......................... 25
i
ABOUT THIS PROSPECTUS SUPPLEMENT AND THE PRICING SUPPLEMENTS
Except as the context otherwise requires or as otherwise specified in this
prospectus supplement or the prospectus, as used in this prospectus supplement,
dated November 1, 2002 and the prospectus, dated September 13, 2002, the terms
'we,' 'our,' 'us,' and 'CIT' refer to CIT Group Inc. and its consolidated
subsidiaries. References in this prospectus supplement to 'U.S. dollars' or
'U.S. $' or '$' are to the currency of the United States of America.
We may use this prospectus supplement, together with the prospectus and a
pricing supplement, to offer CIT InterNotes'r' from time to time. The total
initial public offering price of notes that may be offered by use of this
prospectus supplement is $2,000,000,000.
This prospectus supplement sets forth certain terms of the notes that we may
offer. It supplements the description of the notes contained in the prospectus,
where the notes are included in the defined term 'Debt Securities.' If
information in this prospectus supplement is inconsistent with the prospectus,
this prospectus supplement will apply and you should not rely on the information
in the prospectus.
Each time we issue notes, we will attach a pricing supplement to this
prospectus supplement. The pricing supplement will contain the specific
description of the notes being offered and the terms of the offering. The
pricing supplement may also add, update or change information in this prospectus
supplement or the prospectus. Information in the pricing supplement will replace
any inconsistent information in this prospectus supplement, including any
changes in the method of calculating interest on any note. The pricing
supplement will apply in those circumstances and you should not rely on the
information in this prospectus supplement or the prospectus.
When we refer to the prospectus, we mean the prospectus which accompanies
this prospectus supplement. When we refer to a pricing supplement, we mean the
pricing supplement we file with respect to a particular note.
You should read and consider all information contained in this prospectus
supplement, the prospectus and the pricing supplement in making your investment
decision.
S-1
INCORPORATION BY REFERENCE
The SEC allows us to 'incorporate by reference' the information we file with
them, which means we can disclose important information to you by referring you
to those documents. The information included in the following documents is
incorporated by reference and is considered to be a part of this prospectus
supplement. The most recent information that we file with the SEC automatically
updates and supersedes older information.
In addition to the items incorporated by reference into this prospectus
supplement and the prospectus as set forth in the prospectus, the following
documents shall be deemed to be incorporated in, and to form part of, this
prospectus supplement:
1. CIT Group Inc. (Nevada)'s Transition Report on Form 10-K for the
transition period ended September 30, 2001;
2. CIT Group Inc. (Nevada)'s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2001;
3. CIT Group Inc. (Nevada)'s Quarterly Report on Form 10-Q, as amended on
Form 10-Q/A, for the quarter ended March 31, 2002;
4. Our Quarterly Report on Form 10-Q, as amended on Form 10-Q/A, for the
quarter ended June 30, 2002;
5. CIT Group Inc. (Nevada)'s Current Reports on Form 8-K filed January 17,
2002, January 24, 2002, February 7, 2002, February 22, 2002 and
April 26, 2002; and
6. Our Current Reports on Form 8-K filed July 10, 2002, July 15, 2002,
July 25, 2002, October 24, 2002, October 29, 2002, October 30, 2002 and
October 31, 2002.
Until we have sold all of the debt securities which we are offering for sale
under this prospectus supplement and the prospectus, we will also incorporate by
reference all documents that we file in the future pursuant to Section 13(a),
13(c), 14, or 15(d) of the Securities Exchange Act of 1934, as amended (the
'Exchange Act').
S-2
SUMMARY
This section summarizes the legal and financial terms of the notes that are
described in more detail in 'Description of Notes' beginning on page S-21. Final
terms of any particular notes will be determined at the time of sale and will be
contained in the pricing supplement relating to those notes. The terms of the
notes appearing in that pricing supplement may vary from, and if they do vary
will supersede, the terms contained in this summary and in 'Description of
Notes.' In addition, you should read the more detailed information appearing
elsewhere in this prospectus supplement, the prospectus and in that pricing
supplement.
Issuer.................................... CIT Group Inc., 1211 Avenue of the Americas, New York,
New York 10036; phone (212) 536-1390
Purchasing Agent.......................... Incapital LLC
Joint Lead Managers and Lead Agents....... Banc of America Securities LLC and Incapital LLC
Agents.................................... BMO Nesbitt Burns Corp.
Charles Schwab & Co., Inc.
Edward D. Jones & Co., L.P.
Fidelity Capital Markets,
a division of National Financial Services, LLC
RBC Dain Rauscher
Salomon Smith Barney Inc.
UBS PaineWebber Inc.
Wachovia Securities, Inc.
Title of Notes............................ CIT InterNotes'r'
Amount.................................... We may issue up to $2,000,000,000 of notes in connection
with this program. Additional notes may be issued in the
future without the consent of or notice to note holders.
The notes will not contain any limitations on our
ability to issue additional InterNotes'r' or any other
indebtedness.
Denominations............................. The notes will be issued and sold in denominations of
$1,000 and multiples of $1,000 (unless otherwise stated
in the pricing supplement).
Status.................................... The notes will be our direct unsecured senior
obligations and will rank equally with all of our other
unsecured senior indebtedness from time to time
outstanding. The notes will be junior to any
indebtedness of any of our subsidiaries unless the terms
of that indebtedness provide otherwise.
Maturities................................ Each note will mature nine months or more from its date
of original issuance.
S-3
Interest.................................. Each note will bear interest from its date of original
issuance at a fixed rate per year.
Interest on each note will be payable either monthly,
quarterly, semi-annually or annually on each interest
payment date and on the stated maturity date. Interest
also will be paid on the date of redemption or repayment
if a note is redeemed or repurchased prior to its stated
maturity in accordance with its terms.
Interest on the notes will be computed on the basis of a
360-day year of twelve 30-day months.
Principal................................. The principal amount of each note will be payable on its
stated maturity date at the corporate trust office of
the paying agent or at any other place we may designate.
Redemption and Repayment.................. Unless otherwise stated in the applicable pricing
supplement, a note will not be redeemable at our option
or be repayable at the option of the holder prior to its
stated maturity date. The notes will not be subject to
any sinking fund.
Survivor's Option......................... Specific notes may contain a provision permitting the
optional repayment of those notes prior to stated
maturity, if requested by the authorized representative
of the beneficial owner of those notes, following the
death of the beneficial owner of the notes, so long as
the notes were owned by the beneficial owner or his or
her estate at least six months prior to the request.
This feature is referred to as a 'Survivor's Option.'
Your notes will not be repaid in this manner unless the
pricing supplement for your notes provides for the
Survivor's Option. The right to exercise the Survivor's
Option is subject to limits set by us on (1) the
permitted dollar amount of total exercises by all
holders of notes in any calendar year, and (2) the
permitted dollar amount of an individual exercise by a
holder of a note in any calendar year. Additional
details on the Survivor's Option are described in the
section entitled 'Description of Notes -- Survivor's
Option' on page S-24.
Sale and Clearance........................ We will sell notes in the United States only. Notes will
be issued in book-entry only form and will clear through
The Depository Trust Company. We do not intend to issue
notes in certificated form.
Trustee................................... The trustee for the notes is Bank One Trust Company,
N.A. under an indenture dated as of August 26, 2002.
S-4
Selling Group............................. The agents and dealers comprising the selling group are
broker-dealers and securities firms. The agents,
including the Purchasing Agent, have entered into a
selling agent agreement with us dated November 1, 2002
(the 'selling agent agreement'). Dealers who are members
of the selling group have executed a master selected
dealer agreement with the Purchasing Agent (the 'master
selected dealer agreement'). The agents and the dealers
have agreed to market and sell the notes in accordance
with the terms of those respective agreements and all
other applicable laws and regulations. You may contact
the Purchasing Agent at info@incapital.com for a list of
selling group members.
S-5
RISK FACTORS
You should carefully consider the following discussion of risks, and the
other information, provided in this prospectus supplement. The risks described
below are not the only ones facing us. Additional risks that are presently
unknown to us or that we currently deem immaterial may also impair our business.
The notes will not be an appropriate investment for you if you are not
knowledgeable about significant features of the notes or financial matters in
general. You should not purchase the notes unless you understand, and know that
you can bear, these investment risks.
RISKS RELATED TO CIT'S BUSINESS
WE MAY BE ADVERSELY AFFECTED BY A GENERAL DETERIORATION IN ECONOMIC CONDITIONS.
Our business, financial condition and results of operations may be affected
by various economic factors, including the level of economic activity in the
markets in which we operate. Unfavorable economic conditions may make it more
difficult for us to maintain both our new business origination volume and the
credit quality of new business at levels previously attained. Our growth depends
significantly upon our ability to generate new finance receivables, and in a
recession or other adverse economic environment, growth in our finance
receivables may be limited by a decrease in demand for consumer or commercial
credit or by a decline in collateral values. Delinquencies, foreclosures and
credit losses generally increase during economic slowdowns or recessions.
We are also subject to industry-specific economic factors. An economic
downturn or slowdown in an industry could reduce demand for the financing we
provide for products of that industry. For example, our factoring business could
decline if there is a downturn in the retail textile, apparel, furniture or home
furnishings markets. At June 30, 2002, 11.9% of our total financing and leasing
assets related to obligations of retailers, 11.9% related to commercial airline
obligations and 3.5% related to home equity obligations. Adverse economic
conditions in the markets or industries that we serve could have a material
adverse effect on our business, financial position or results of operations.
In a recession or under other adverse economic conditions, nonearning assets
and writedowns are likely to increase as debtors fail to meet their payment
obligations. Although we maintain a consolidated reserve for credit losses in an
amount that we believe is sufficient to provide adequate protection against
potential writedowns in our portfolio, this allowance could prove to be
insufficient. Adverse economic conditions may impair our ability to re-lease or
remarket our leased equipment or other collateral securing our finance
receivables and realize the value at which we carry our leased assets and/or
estimated lease residual values on our books.
A recession or downturn could contribute to a downgrading of our credit
ratings. A ratings downgrade likely would increase our funding costs, and could
decrease our net finance income, limit our access to the capital markets or
result in a decision by the lenders under our existing bank credit facilities
not to extend such credit facilities after their expiration.
The broad-based economic slowdown in 2001 led to increases in both past-due
loans and non-performing assets. We have experienced increases in our commercial
past-due loans and non-performing assets across a wide range of industries,
including trucking, construction, retail and technology, as well as
manufacturing and machine tools. Continued weak economic conditions have
recently resulted in higher charge-offs in virtually all of our business
segments. Our reserve for credit losses as a percentage of finance receivables
has increased significantly due primarily to reserving actions for certain
telecommunication assets and as a result of continuing general economic weakness
and uncertainty in
S-6
Argentina. In addition, our new origination volume has recently declined due in
part to soft economic conditions. We can provide no assurance regarding when
economic conditions will strengthen, or that these trends will improve when the
economy begins to grow again.
OUR LIQUIDITY OR ABILITY TO RAISE CAPITAL MAY BE LIMITED.
Our primary funding sources have historically been commercial paper,
medium-term notes and asset-backed securities. We also maintain committed bank
lines of credit to provide liquidity support of commercial paper borrowings and
to support our international operations. An additional source of liquidity is
cash flow from operations, including loan and lease payments from customers,
whole loan sales and syndications.
Following Tyco's announcement on January 22, 2002 of its plans to separate
into four independent, publicly-traded companies and other related events, we
experienced a downgrade in our credit ratings by Standard & Poor's and Fitch.
While we continued to maintain investment-grade ratings, these events limited
our access to the commercial paper market.
On February 5, 2002, we drew on our $8.5 billion in unsecured bank credit
facilities, which have historically been maintained as liquidity support for our
commercial paper programs. The proceeds from these bank lines are being used to
pay down outstanding commercial paper at the scheduled maturities. The cost of
the bank loans is higher than the cost of commercial paper, and will adversely
affect our future operating results. Although, following our initial public
offering, we accessed the commercial paper market with a dealer-based program,
and paid down a portion of our bank debt, we can provide no assurance that we
will be able to continue to access that market on favorable terms or at levels
previously attained.
We will need to effect debt or equity financings in the future. The type,
timing and terms of financing selected by us will depend upon our cash needs,
the availability of other financing sources and the prevailing conditions in the
financial markets. While we have recently accessed the debt and commercial paper
markets, there can be no assurance that any of these sources will be available
to us at any given time or that they will be available on favorable terms. On
June 7, 2002, Standard & Poor's downgraded our long-term debt rating from A- to
BBB+, and on June 10, 2002, Fitch downgraded our long-term debt rating from A-
to BBB. Following our initial public offering, Standard & Poor's raised our
long-term debt rating to A/A-1 and Fitch raised our long-term debt rating to A.
There can be no assurance that there will not be downgrades in our credit
ratings in the future. If such downgradings do occur, they will likely result in
an increase in our interest expense or have an adverse impact on our ability to
access the commercial paper market or the public and private debt markets.
SIGNIFICANT INCREASES OR DECREASES IN PREVAILING INTEREST RATES COULD ADVERSELY
AFFECT OUR BUSINESS.
Our operating results and cash flow depend to a great extent upon our level
of net finance income which is the difference between total finance income
earned on earning assets, such as loans and investments, and total interest
expense paid on interest-bearing liabilities, such as borrowings. The amount of
net finance income is affected by changes in the volume and mix of earning
assets, the rates earned on those assets, the volume of interest-bearing
liabilities and the rates paid on those interest-bearing liabilities.
Although we have an active and comprehensive approach to managing our
interest rate risk, including matching the repricing characteristics of our
assets with our liabilities, significant increases in market interest rates, or
the perception that an increase may occur, could adversely affect both our
ability to
S-7
originate new finance receivables and our ability to grow. Conversely, a
decrease in interest rates could result in an acceleration in the prepayment of
owned and managed finance receivables. In addition, changes in market interest
rates, or in the relationships between short-term and long-term market interest
rates, or between different interest rate indices (i.e., basis risk) could
affect the interest rates charged on interest-earning assets differently than
the interest rates paid on interest-bearing liabilities, which could result in
an increase in interest expense relative to finance income. An increase in
market interest rates also could adversely impact the ability of our
floating-rate borrowers to meet their higher payment obligations, which could
result in an increase in nonearning assets and writedowns.
INVESTMENT IN AND REVENUES FROM OUR FOREIGN OPERATIONS ARE SUBJECT TO THE RISKS
ASSOCIATED WITH TRANSACTIONS INVOLVING FOREIGN CURRENCIES.
Foreign currency exchange rate fluctuations can have a material adverse
effect on the investment in international operations and the level of
international revenues that we generate from international asset-based financing
and leasing. Reported results from our operations in foreign countries may
fluctuate from period to period due to exchange rate movements in relation to
the U.S. dollar, particularly exchange rate movements in the Canadian dollar,
which is our largest non-U.S. exposure. In addition, an economic recession or
downturn or increased competition in the international markets in which we
operate could adversely affect us. Other risks inherent in conducting
international business operations generally include political and macro-economic
instability, changes in regulatory requirements and taxes, unreliability of
judicial processes, financial market instability and illiquidity. There can be
no assurance that one or more of these factors will not have a material adverse
effect on our business, financial conditions and results of operations. In
addition, instability or adverse economic conditions in international markets
may materially adversely affect the businesses of our domestic customers, which
could materially adversely affect such customers' demand for our products.
At June 30, 2002, we had approximately $180 million of U.S.
dollar-denominated loans and assets outstanding to customers located or doing
business in Argentina. The Argentine government recently instituted economic
reforms, including the conversion of certain dollar-denominated loans into
pesos. We are currently assessing the impact of these government actions on our
U.S. dollar-denominated loans and assets and reserve for credit losses. If the
Argentine government does not reverse its action, or if the governments of other
foreign jurisdictions take any similar actions, it could have a material adverse
impact on our business, financial condition and results of operations. As of
June 30, 2002, we recorded a $135.0 million provision to reserve for
Argentina-related receivables.
OUR FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED IF WE WERE UNABLE
TO COMPLETE SECURITIZATIONS.
We fund most of our assets on our balance sheet using our access to the
medium-term note and capital markets. In an effort to broaden our funding
sources and to provide an additional source of liquidity, we have in place an
array of securitization programs to access both the public and private asset-
backed securitization markets. Under a typical asset-backed securitization, we
sell a 'pool' of secured loans or leases to a special-purpose entity, generally
a trust. The special purpose entity, in turn, typically issues certificates
and/or notes that are collateralized by the pool and entitle the holders thereof
to participate in certain pool cash flows. Several factors affect our ability to
complete securitizations, including:
conditions in the securities markets, generally;
S-8
conditions in the asset-backed securities market;
the credit quality and performance of our financial instruments;
our ability to obtain third-party credit enhancement;
our ability to adequately service our financial instruments; and
the absence of any material downgrading or withdrawal of ratings given to
securities previously issued in our securitizations.
In a securitization transaction, a gain on sale and a related retained
interest in the securitized pool are recognized when the assets being
securitized are sold. The value of the retained interest recognized in a
securitization transaction is dependent upon certain assumptions regarding
future performance of the securitized portfolio, including the level of credit
losses and the rate of prepayments. If actual credit losses or prepayment rates
differ from the original assumptions, the value of the retained interest in the
securitized pool may increase or decrease materially. The value of the retained
interest in the securitized pool may also increase or decrease materially with
changes in market interest rates. Also, if assets being securitized are not
properly hedged, the gain on sale recorded in a securitization transaction may
be materially affected by changes in market interest rates between the time the
assets being securitized are originated and the time the assets are sold to the
securitization entity.
Changes in the volume of assets securitized or decreases in the value of
retained interests in securitizations due to changes in market interest rates or
higher than expected credit losses on prepayments could have a material adverse
effect on our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO REALIZE OUR ENTIRE INVESTMENT IN THE EQUIPMENT WE LEASE.
We lease various types of equipment to customers through two distinct types
of transactions: capital leases and operating leases. A capital lease passes
substantially all of the risks and rewards of owning the related equipment to
the customer. Lease payments during the initial terms of a capital lease cover
approximately 90% of the underlying equipment's cost at the inception of the
lease. The realization of unrecovered equipment values (residual values) at the
end of the term of a lease is an important element in the leasing business. The
duration of an operating lease, however, is substantially shorter relative to
the equipment's useful life. We bear greater risk in operating leases as we may
not be able to remarket the equipment on terms that will allow us to fully
recover our operating lease equipment carrying values.
At the inception of each capital lease, we record a residual value for the
leased equipment based on our estimate of the future value of the equipment at
the expected disposition date. Residual values are determined by experienced
internal equipment management specialists, as well as external consultants. We
also record periodic depreciation expense on operating lease equipment based
upon estimates of the equipment's useful life and the estimated future value of
the equipment at the end of its useful life. A decrease in the market value of
leased equipment at a rate greater than the rate we projected, whether due to
rapid technological or economic obsolescence, unusual wear and tear on, or use
of, the equipment or other factors, would materially adversely affect the
residual values of such equipment. Consequently, there can be no assurance that
our estimated residual values for equipment will be realized.
S-9
CONTINUED WEAKNESS IN THE TELECOMMUNICATIONS INDUSTRY COULD ADVERSELY IMPACT THE
VALUE OF OUR TELECOMMUNICATIONS PORTFOLIO
Our telecommunications portfolio was approximately $726 million at June 30,
2002, and includes approximately $288 million of Competitive Local Exchange
Carrier (CLEC) accounts. The highly competitive telecommunications industry has
experienced over-capacity and substantial decline over the past year, which has
resulted in considerable weakness in asset values in the sector. Our CLEC
portfolio includes many companies which are in the process of building out their
networks and developing their customer bases. Therefore, these companies are
more vulnerable to the overall industry decline.
As of June 30, 2002, we recorded a $200.0 million provision for our
telecommunications portfolio, principally reflecting weaknesses in the CLEC
industry. Continued deterioration in the sector could result in losses beyond
current reserve levels.
OUR RESERVE FOR CREDIT LOSSES MAY PROVE INADEQUATE.
Our business depends on the creditworthiness of our customers. We believe
that our credit risk management systems are adequate to limit our credit losses
to a manageable level. We attempt to mitigate credit risks through the use of a
corporate credit risk management group, formal credit management processes
implemented by each business unit and automated credit scoring capabilities for
small ticket business.
We maintain a consolidated reserve for credit losses on finance receivables.
Our consolidated reserve for credit losses reflects management's judgment of
losses inherent in the portfolio. Management periodically reviews our
consolidated reserve for adequacy considering economic conditions and trends,
collateral values and credit quality indicators, including past charge-off
experience and levels of past due loans and non-performing assets.
The consolidated reserve for credit losses is intended to provide for losses
inherent in the portfolio, which requires the application of estimates and
significant judgment as to the ultimate outcome of collection efforts and
realization of collateral, among other things. We cannot be certain that our
consolidated reserve for credit losses will be adequate over time to cover
credit losses in our portfolio because of unanticipated adverse changes in the
economy or events adversely affecting specific customers, industries or markets.
If the credit quality of our customer base materially decreases, or if our
reserves for credit losses are not adequate, our business, financial condition
and results of operations may suffer.
OUR COMMERCIAL AIRLINE FINANCING BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED
BY THE EVENTS OF SEPTEMBER 11, 2001 AND THE WEAK ECONOMY.
A portion of the Capital Finance business within our Equipment Financing and
Leasing segment involves providing financing to commercial airlines. The Capital
Finance aerospace portfolio includes most of the leading U.S. and foreign
commercial airlines, with a fleet of approximately 200 aircraft, with an average
age of eight years.
The Capital Finance business may be materially adversely affected by the
challenges faced by the airline industry due to a combination of the terrorist
attacks on September 11, 2001 and the current worldwide economic slowdown.
Airlines face a number of increased costs, including higher insurance premiums
and security costs, while also experiencing a reduction in demand. As a result
of these circumstances, some airlines have taken aircraft out of service, sought
to restructure their fixed costs, including their debt and lease payments, and
sought protection from creditors in bankruptcy. Accordingly,
S-10
we have experienced significant rental reductions or disruptions. Our portfolio
could be materially adversely affected by these factors, resulting in, among
other effects, declines in the value of aircraft, delays in payments on existing
financings and reduced new business origination.
OUR POTENTIAL ACQUISITION OR DISPOSITION OF BUSINESSES OR ASSET PORTFOLIOS IN
THE FUTURE MAY ADVERSELY IMPACT OUR BUSINESS.
As part of our long-term business strategy, we may pursue acquisitions of
other companies or asset portfolios. In addition, as we have done recently, we
may dispose of non-strategic businesses or asset portfolios. Future acquisitions
may result in potentially dilutive issuances of equity securities and the
incurrence of additional debt, which could have a material adverse effect on our
business, financial condition and results of operations. Future acquisitions
could involve numerous additional risks, including: difficulties in integrating
the operations, services, products and personnel of the acquired company; the
diversion of management's attention from other business concerns; entering
markets in which we have little or no direct prior experience; and the potential
loss of key employees of the acquired company. In addition, acquired businesses
and asset portfolios may have credit-related risks arising from substantially
different underwriting standards associated with those businesses or assets. In
the event of future dispositions of our businesses or asset portfolios, there
can be no assurance that we will receive adequate consideration for those
businesses or assets at the time of their disposition or will be able to
adequately replace the volume associated with the businesses or asset portfolios
that we dispose of with higher-yielding businesses or asset portfolios having
acceptable risk characteristics. As a result, our future disposition of
businesses or asset portfolios could have a material adverse effect on our
business, financial condition and results of operations.
WE COMPETE WITH A VARIETY OF FINANCING SOURCES FOR OUR CUSTOMERS.
Our markets are highly competitive and are characterized by competitive
factors that vary based upon product and geographic region. Our competitors
include captive and independent finance companies, commercial banks and thrift
institutions, industrial banks, leasing companies, manufacturers and vendors
with global reach. Substantial financial services networks have been formed by
insurance companies and bank holding companies that compete with us. On a local
level, community banks and smaller independent finance and mortgage companies
are a competitive force.
Competition from both traditional, competitors and new market entrants has
intensified in recent years due to a strong economy, growing marketplace
liquidity and increasing recognition of the attractiveness of the commercial
finance markets. In addition, the rapid expansion of the securitization markets
is dramatically reducing the difficulty in obtaining access to capital, which is
the principal barrier to entry into these markets. This is further intensifying
competition in certain market segments, including increasing competition from
specialized securitization lenders which offer aggressive pricing terms.
We compete primarily on the basis of pricing, terms and structure. Our
competitors seek to compete aggressively on the basis of these factors and we
may lose market share to the extent we are unwilling to match our competitors'
pricing, terms and structure in order to maintain interest margins and/or credit
standards. To the extent that we match competitors' pricing, terms or structure,
we may experience decreased interest margins and/or increased risk of credit
losses. Many of our competitors are large companies that have substantial
capital, technological and marketing resources, and some of these competitors
are larger than us and may have access to capital at a lower cost than us.
Further, the size
S-11
and access to capital of certain of our competitors are being enhanced by the
continued consolidation activity in the commercial and investment banking
industries.
OUR BUSINESS MAY BE MATERIALLY ADVERSELY AFFECTED BY THE HIGHLY REGULATED
ENVIRONMENT IN WHICH WE OPERATE.
Our domestic operations are subject, in certain instances, to supervision
and regulation by state and federal authorities and may be subject to various
laws and judicial and administrative decisions imposing various requirements and
restrictions. Such regulation and supervision are primarily for the benefit and
protection of our customers, and not for the benefit of investors, and could
limit our discretion in operating our businesses. For example, state laws often
establish maximum allowable finance charges for certain consumer and commercial
loans. Noncompliance with applicable statutes or regulations could result in the
suspension or revocation of any license or registration at issue, as well as the
imposition of civil fines and criminal penalties.
The financial services industry is heavily regulated in many jurisdictions
outside the United States. The varying requirements of these jurisdictions may
be inconsistent with U.S. rules and may adversely affect our business or limit
our ability to expand our international operations. We may not be able to obtain
necessary regulatory approvals, or if approvals are obtained, we may not be able
to continue to comply with the terms of the approvals or applicable regulations.
In addition, in many countries, the regulations applicable to the financial
services industry are uncertain and evolving, and it may be difficult for us to
determine the exact regulatory requirements.
Our inability to remain in compliance with regulatory requirements in a
particular jurisdiction could have a material adverse effect on our operations
in that market and on our reputation generally. No assurance can be given that
applicable laws or regulations will not be amended or construed differently,
that new laws and regulations will not be adopted or that we will not be
prohibited by state laws from raising interest rates above certain desired
levels, any of which could materially adversely affect our business, financial
condition or results of operations.
RISKS RELATED TO THE NOTES
THE MARKET VALUE OF THE NOTES MAY BE AFFECTED BY FACTORS IN ADDITION TO CREDIT
RATINGS.
Any credit ratings that are assigned to the notes may not reflect the
potential impact of all risks on the market value of the notes.
WE MAY CHOOSE TO REDEEM NOTES WHEN PREVAILING INTEREST RATES ARE RELATIVELY LOW.
If your notes will be redeemable at our option, we may choose to redeem your
notes from time to time, especially when prevailing interest rates are lower
than the rate borne by the notes. If prevailing rates are lower at the time of
redemption, you would not be able to reinvest the redemption proceeds in a
comparable security at an effective interest rate as high as the interest rate
on the notes being redeemed. Our redemption right also may adversely impact your
ability to sell your notes as the optional redemption date or period approaches.
S-12
ANY SURVIVOR'S OPTION MAY BE LIMITED IN AMOUNT.
We will have a discretionary right to limit the aggregate principal amount
of notes subject to any Survivor's Option that may be exercised in any calendar
year to an amount equal to the greater of $2,000,000 or 2% of the outstanding
principal amount of all notes outstanding as of the end of the most recent
calendar year. We also have the discretionary right to limit to $250,000 in any
calendar year the aggregate principal amount of notes subject to the Survivor's
Option that may be exercised in such calendar year on behalf of any individual
deceased beneficial owner of notes. Accordingly, no assurance can be given that
exercise of the Survivor's Option for a desired amount will be permitted in any
single calendar year.
THE NOTES MAY HAVE LIMITED OR NO LIQUIDITY.
There is currently no secondary market for the notes, and there can be no
assurance that a secondary market will develop. If a secondary market does
develop, there can be no assurance that it will continue or that it will be
sufficiently liquid to allow you to resell your notes when you want or at a
price that you wish to receive for your notes.
THE COVENANTS IN THE INDENTURE DO NOT REQUIRE US TO REPURCHASE OR REDEEM THE
NOTES UPON A CHANGE IN CONTROL OF CIT OR OTHER EVENTS INVOLVING US THAT MAY
AFFECT OUR CREDITWORTHINESS.
The indenture does not require us to repurchase or redeem or otherwise
modify the terms of the notes upon a change in control of CIT or other events
involving CIT that may affect our creditworthiness. These events include:
a consolidation, merger, sale of assets or other similar transaction;
a change in control of CIT; or
a highly leveraged transaction involving us whether or not involving a
change in control.
In addition, the covenants applicable to the notes do not prevent
transactions like those described above from taking place. See 'Description of
Debt Securities' in the prospectus.
S-13
DESCRIPTION OF CIT GROUP INC.
CIT is a leading global commercial and consumer finance company that has
been a consistent provider of financing and leasing capital since 1908. With
about $48 billion of managed assets, we have the financial resources,
intellectual capital and product knowledge to serve the needs of our clients
across a wide variety of industries. Our clients range from small private
companies to many of the world's largest and most respected multinational
corporations. Our principal executive offices are located at 1211 Avenue of the
Americas, New York, New York 10036 and our telephone number is (212) 536-1390.
CIT is a corporation of perpetual duration and is governed under the laws of the
State of Delaware. The original predecessor to CIT commenced operations on
February 11, 1908. CIT was incorporated on March 12, 2001. We have developed a
broad array of 'franchise' businesses that focus on specific industries, asset
types and markets, which are balanced by client, industry and geographic
diversification. We had $4.5 billion of shareholder's equity at June 30, 2002.
On July 8, 2002, our former parent company, Tyco International Ltd.
('Tyco'), completed a sale of 100% of CIT's outstanding common stock in an
initial public offering. Immediately prior to the offering, a restructuring was
effectuated whereby our predecessor CIT Group Inc., a Nevada corporation (which
is referred to in this prospectus supplement as CIT Group Inc. (Nevada)), was
merged with and into its parent Tyco Capital Holding, Inc., and that combined
entity was further merged with and into CIT Group Inc. (Del), a Delaware
corporation. In connection with the reorganization, CIT Group Inc. (Del) was
renamed CIT Group Inc. As a result of the reorganization, CIT is the successor
to CIT Group Inc. (Nevada)'s business, operations, obligations and SEC
registration.
S-14
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF CIT GROUP INC.
On June 1, 2001, CIT was acquired by a wholly-owned subsidiary of Tyco in a
purchase business combination recorded under the 'push-down' method of
accounting, resulting in a new basis of accounting for the 'successor' period
beginning June 2, 2001. Information relating to all 'predecessor' periods prior
to the acquisition is presented using CIT's historical basis of accounting.
Following the acquisition, we changed our fiscal year end from December 31 to
September 30 to conform with that of Tyco.
On September 30, 2001, we sold certain international subsidiaries that had
assets of approximately $1.8 billion and liabilities of $1.5 billion to a
non-U.S. subsidiary of Tyco for a promissory note equal to the net book value.
Our earnings included the results of these subsidiaries through September 30,
2001. On February 11, 2002, CIT repurchased these international subsidiaries for
a purchase price equal to the net book value. The financial information
presented in this section includes the international subsidiaries repurchased
from Tyco for all periods presented; as a result, the Balance Sheet Data at
September 30, 2001 varies slightly from comparable data reported in CIT's Form
10-K for the transition period ended September 30, 2001.
On July 8, 2002, Tyco completed a sale of 100% of CIT's common stock in an
initial public offering. Immediately prior to the offering, a restructuring was
effectuated whereby our predecessor, CIT Group Inc. (Nevada), was merged with
and into CIT Group Inc. (Del), a Delaware corporation. In connection with the
reorganization, CIT Group Inc. (Del) was renamed CIT Group Inc. As a result of
the reorganization, CIT is the successor to CIT Group Inc. (Nevada)'s business,
operations, obligations and SEC registration.
The following tables set forth selected consolidated financial information
regarding CIT's results of operations and balance sheets. The financial data at
and for the nine months ended June 30, 2002 and 2001 were derived from the
unaudited Consolidated Financial Statements of CIT incorporated by reference in
this prospectus supplement. The financial data at September 30, 2001 and
December 31, 2000, for the transition period ended September 30, 2001 and for
each of the two years in the period ended December 31, 2000 were derived from
the audited Consolidated Financial Statements of CIT incorporated by reference
in this prospectus supplement. The financial data at December 31, 1999, 1998 and
1997 and for each of the three years in the period ended December 31, 1999 were
derived from audited financial statements that are not incorporated by reference
in this prospectus supplement. To assist in the comparability of our financial
results the financial information in the following tables combines the
'predecessor period' (January 1 through June 1, 2001) with the 'successor
period' (June 2 through September 30, 2001) to present 'combined' results for
the nine months ended September 30, 2001. You should read the selected
consolidated financial data below in conjunction with our consolidated financial
statements. See 'Where You Can Find More Information' in the prospectus and
'Incorporation by Reference' in this prospectus supplement.
Restatement -- CIT restated its Consolidated Financial Statements for the
quarter ended March 31, 2002 to reflect an impairment of goodwill in accordance
with Statement of Financial Accounting Standard ('SFAS') No. 142, 'Goodwill and
Other Intangibles,' resulting in an estimated goodwill impairment charge of
$4.51 billion. This restatement has no impact on previously reported operating
margin or net cash provided by operations for any periods. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations' and
Note 6, 'Accounting Change -- Goodwill' in our Quarterly Report on Form 10-Q, as
amended on Form 10-Q/A, for the quarter ended March 31, 2002, which is
S-15
incorporated by reference into this prospectus supplement, for further
information regarding the goodwill impairment.
Our results of operations for the quarter ended June 30, 2002 reflect an
additional $1,999.0 million goodwill impairment charge in accordance with SFAS
No. 142, taking into account the initial public offering valuation of CIT
relative to the book value of goodwill recorded in conjunction with our June
2001 acquisition by Tyco. We also took additional pre-tax charges of $260.0
million for the quarter ended June 30, 2002 related to our telecommunications
portfolio, our Argentine portfolio and to bolster our general reserves. See our
Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, which is
incorporated by reference into this prospectus supplement, for further
information regarding these charges and for the results for the quarter ended
June 30, 2002.
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED YEARS ENDED DECEMBER 31,
JUNE 30, JUNE 30, SEPTEMBER 30, -------------------------------------
2002 2001 2001(1)(2)(3) 2000 1999(4) 1998 1997
($ IN MILLIONS) ---- ---- ------------- ---- ------- ---- ----
(SUCCESSOR) (COMBINED) (COMBINED) (PREDECESSOR)
RESULTS OF OPERATIONS
Net finance margin.... $1,291.7 $1,224.7 $1,318.8 $1,469.4 $ 917.4 $804.8 $740.7
Provision for credit
losses.............. 665.6 298.8 332.5 255.2 110.3 99.4 113.7
Other revenue......... 723.3 550.7 572.6 912.0 350.8 255.4 247.8
Operating margin...... 1,349.4 1,476.6 1,558.9 2,126.2 1,157.9 960.8 932.8(5)
Salaries and general
operating
expenses............ 687.8 788.3 784.9 1,035.2 516.0 407.7 420.0
Goodwill
amortization........ -- 74.7 97.6 86.3 25.7 10.1 8.4
Goodwill impairment... 6,511.7(6) -- -- -- -- -- --
Net (loss) income..... (6,109.9) 312.6 333.8 611.6 389.4 338.8 310.1
(table continued on next page)
S-16
(table continued from previous page)
AT DECEMBER 31,
AT JUNE 30, AT SEPTEMBER 30, ---------------------------------------------
2002 2001(1)(2)(3) 2000 1999(4) 1998 1997(8)
($ IN MILLIONS) ---- ------------- ---- ------- ---- -------
(SUCCESSOR) (PREDECESSOR)
BALANCE SHEET DATA
Total finance
receivables........... $27,925.4 $31,879.4 $33,497.5 $31,007.1 $19,856.0 $17,719.7
Reserve for credit
losses................ 808.9 492.9 468.5 446.9 263.7 235.6
Operating lease
equipment, net........ 6,689.7 6,402.8 7,190.6 6,125.9 2,774.1 1,905.6
Goodwill, net........... 384.4 6,547.5 1,964.6 1,850.5 216.5 134.6
Total assets............ 41,336.7 51,090.1 48,689.8 45,081.1 24,303.1 20,464.1
Commercial paper........ 34.0 8,869.2 9,063.5 8,974.0 6,144.1 5,559.6
Variable-rate bank
credit facilities..... 8,534.2 -- -- -- -- --
Variable-rate senior
notes................. 7,172.7 9,614.6 11,130.5 7,147.2 4,275.0 2,861.5
Fixed-rate senior
notes................. 16,882.2 17,113.9 17,571.1 19,052.3 8,032.3 6,593.8
Subordinated fixed-rate
notes................. -- 100.0 200.0 200.0 200.0 300.0
Company-obligated
mandatorily redeemable
preferred securities
of subsidiary trust
holding solely
debentures of CIT..... 258.1 260.0 250.0 250.0 250.0 250.0
Shareholder's equity.... 4,514.3 10,598.0 6,007.2 5,554.4 2,701.6 2,432.9
Tangible shareholder's
equity................ 4,129.9 4,028.5 4,042.6 3,703.9 2,485.1 2,298.3
---------
(1) In September 2001, CIT changed its fiscal year end from December 31 to
September 30 to conform to Tyco's fiscal year end.
(2) On September 30, 2001, we sold certain international subsidiaries, which had
assets of $1.8 billion and liabilities of $1.5 billion, to a non-U.S.
subsidiary of Tyco for a note in the amount of the net book value of
approximately $295 million. This sale did not affect earnings for the period
ended September 30, 2001. On February 11, 2002, we repurchased the
international subsidiaries that we had previously sold to an affiliate of
Tyco for a purchase price equal to the net book value. The selected
financial data includes these international operations for all periods
presented; as a result, the Balance Sheet Data at September 30, 2001 varies
slightly from comparable data reported in CIT's Form 10-K for the period
ended September 30, 2001.
(3) Results of operations for the nine months ended September 30, 2001
(combined) include special charges incurred by the predecessor of $221.6
million ($158.0 million after tax). See Note 3 to the Consolidated Financial
Statements of CIT incorporated by reference in this prospectus supplement.
(4) Includes results of operations of Newcourt Credit Group Inc. from the
November 15, 1999 acquisition date.
(5) Includes a 1997 gain of $58.0 million on the sale of an equity interest
acquired in connection with a loan workout.
(6) During the quarter ended March 31, 2002, we recorded an initial estimate of
goodwill impairment of $4.51 billion in accordance with SFAS No. 142,
'Goodwill and Other Intangible Assets.' The Company restated its
Consolidated Financial Statements to reflect this impairment. During the
quarter ended June 30, 2002, we recorded an additional $1,999.0 million
goodwill impairment charge in accordance with SFAS No. 142 to reflect
further impairment. These impairment charges are discussed further under
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' contained in CIT's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2002, which is incorporated by reference in
this prospectus supplement.
S-17
AT OR FOR AT OR FOR
THE THE AT OR FOR THE
NINE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED AT OR FOR THE YEARS ENDED DECEMBER 31,
JUNE 30, JUNE 30, SEPTEMBER 30, ---------------------------------------------
2002 2001 2001(9) 2000 1999 1998 1997
($ IN MILLIONS) ---- ---- ------- ---- ---- ---- ----
(SUCCESSOR) (COMBINED) (COMBINED) (PREDECESSOR)
SELECTED DATA AND RATIOS
Net finance margin as a
percentage of average
earning assets
('AEA')(1)............... 4.75% 3.96% 4.34% 3.61% 3.59% 3.93% 4.06%
Ratio of earnings to fixed
charges(3)............... (4) 1.29x 1.37x(10) 1.39x 1.45x 1.49x 1.51x
OTHER OPERATING RATIOS
Salaries and general
operating expenses
(excluding goodwill
amortization) as a
percentage of average
managed assets
('AMA')(5)............... 1.94% 2.03% 2.21%(10) 2.01% 1.75% 1.78% 2.11%(11)
Efficiency ratio (excluding
goodwill
amortization)(6)......... 34.1% 44.4% 44.7%(10) 43.8% 41.3% 39.2% 40.8%(11)
CREDIT QUALITY
60+ days contractual
delinquency as a
percentage of finance
receivables.............. 3.69% 3.53% 3.46% 2.98% 2.71% 1.75% 1.67%
Net credit losses as a
percentage of average
finance receivables...... 1.57% 1.14% 1.20%(10) 0.71% 0.42% 0.42% 0.59%
Reserve for credit losses
as a percentage of
finance receivables...... 2.90% 1.50% 1.55% 1.40% 1.44% 1.33% 1.33%
Reserve for credit losses
as a percentage of 60+
days contractual
delinquency.............. 78.5%(12) 42.6% 44.7% 46.9% 53.3% 75.8% 79.4%
LEVERAGE
Total debt (net of
overnight deposits) to
tangible stockholders'
equity(2)(7)............. 7.07x 8.22x 8.20x 8.78x 8.75x 6.82x 5.99x
Tangible stockholders'
equity(2) to managed
assets(8)(9)............. 9.2% 8.6% 8.5% 7.8% 7.7% 10.4% 11.4%
OTHER
Total managed
assets(8)(9)............. $47,676.3 $51,087.9 $50,877.1 $54,900.9 $51,433.3 $26,216.3 $22,344.9
Employees.................. 5,935 7,255 6,785 7,355 8,255 3,230 3,025
---------
(1) 'AEA' means average earning assets which is the average of finance
receivables, operating lease equipment, finance receivables held for sale
and certain investments, less credit balances of factoring clients.
(2) Tangible shareholder's equity excludes goodwill and other intangible
assets.
(3) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes and fixed charges. Fixed
charges consist of interest on indebtedness, minority interest in
subsidiary trust holding solely debentures of CIT and one-third of rent
expense which is deemed representative of an interest factor.
(footnotes continued on next page)
S-18
(footnotes continued from previous page)
(4) Earnings were insufficient to cover fixed charges by $5,862.4 million in
the nine months ended June 30, 2002. Earnings for the nine months ended
June 30, 2002 included a non-cash, goodwill impairment charge of
$6,511.7 million in accordance with SFAS No. 142, 'Goodwill and Other
Intangible Assets.' The ratio of earnings to fixed charges includes total
fixed charges of $1,115.7 million and a loss before provision for income
taxes of $5,862.4 million resulting in a total loss before provision for
income taxes and fixed charges of ($4,746.7) million.
(5) 'AMA' means average managed assets, which is average earning assets plus
the average of finance receivables previously securitized and still managed
by us.
(6) Efficiency ratio is the ratio of salaries and general operating expenses to
operating margin excluding the provision for credit losses.
(7) Total debt excludes, and tangible shareholder's equity includes,
CIT-obligated mandatorily redeemable preferred securities of subsidiary
trust holding solely our debentures.
(8) 'Managed assets' are comprised of financing and leasing assets and finance
receivables previously securitized and still managed by us.
(9) Approximately $1.8 billion of international assets were sold to a
subsidiary of Tyco on September 30, 2001, with no effect on earnings for
the nine months ended September 30, 2001. We repurchased our international
assets on February 11, 2002 at net book value. The selected financial data
includes the international operations for all periods presented; as a
result, the Balance Sheet Data at September 30, 2001 varies slightly from
comparable data reported in CIT's Form 10-K for the period ended
September 30, 2001.
(10) Excluding special charges of $221.6 million ($158.0 million after tax) for
the nine months ended September 30, 2001,(i) the ratio of earnings to fixed
charges would have been 1.51x, (ii) the salaries and general operating
expenses as a percentage of AMA would have been 2.07%, (iii) the efficiency
ratio would have been 40.2% and (iv) net credit losses as a percentage of
average finance receivables would have been 0.87%.
(11) Excluding the gain of $58.0 million on the sale of an equity interest
acquired in a loan workout and certain special expenses, for the year ended
December 31, 1997, (i) salaries and general operating expenses as a
percentage of AMA would have been 2.01% and (ii) the efficiency ratio would
have been 41.1%.
(12) The June 30, 2002 percentage was 44.1% excluding provisions primarily
related to certain telecommunications assets and Argentine exposures.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of the notes to provide
additional working funds for us and our subsidiaries. Generally, we use the
proceeds of our short-term borrowings primarily to originate and purchase
receivables in the ordinary course of our business. We have not yet determined
the amounts which we may use in connection with our business or which we may
furnish to our subsidiaries. From time to time, we may also use the proceeds to
finance bulk purchases of receivables and/or the acquisition of other
finance-related businesses.
S-19
CAPITALIZATION OF CIT GROUP INC.
The following table sets forth our capitalization as of June 30, 2002 on a
pro forma basis (1) to reflect the issuance of 200,000,000 shares of our common
stock in connection with the initial public offering of CIT's common stock
completed on July 8, 2002 at a per share offering price of $23.00; (2) to
reflect the issuance on July 15, 2002 of an additional 11,573,200 shares of CIT
common stock pursuant to the exercise of an over-allotment option granted to the
underwriters in the initial public offering at a per share offering price of
$23.00 and (3) to reflect the issuance of 316,302 shares of restricted common
stock to be issued to CIT officers and employees in substitution for Tyco
restricted shares held by such persons.
This table should be read in conjunction with 'Selected Consolidated
Financial Information of CIT Group Inc.,' which is included elsewhere in this
prospectus supplement.
JUNE 30, 2002
-------------
(IN MILLIONS OF $)
Commercial paper............................................ $ 34.0
Bank credit facilities...................................... 8,534.2
Term debt................................................... 24,054.9
CIT obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely debentures of CIT
('Preferred Capital Securities').......................... 258.1
Stockholders' equity:
Preferred stock, $0.01 par value, 100,000,000
authorized; none issued and outstanding............... --
Common stock, $0.01 par value, 600,000,000 authorized;
211,889,502 issued and outstanding on an as adjusted
basis................................................. 2.1
Additional paid in capital.............................. 10,669.6
Accumulated deficit..................................... (5,857.5)
Accumulated other comprehensive loss.................... (50.6)
---------
Total stockholders' equity.............................. 4,763.6
---------
Total capitalization........................................ 37,644.8
Goodwill and other intangible assets, net................... (384.4)
---------
Total tangible capitalization............................... $37,260.4
---------
---------
Total tangible stockholders' equity......................... $ 4,379.2
---------
---------
---------
* Excludes 15,541,432 shares of common stock that are subject to options granted
to CIT officers, directors and employees concurrent with the initial public
offering.
S-20
DESCRIPTION OF NOTES
The following description of the particular terms of the notes being offered
supplements and, to the extent inconsistent with or to the extent otherwise
specified in an applicable pricing supplement, replaces the description of the
general terms and provisions of the debt securities set forth under the headings
'Description of Debt Securities' in the prospectus. Unless otherwise specified
in an applicable pricing supplement, the notes will have the terms described
below. Capitalized terms used but not defined below have the meanings given to
them in the prospectus and in the indenture relating to the notes.
The notes being offered by this prospectus supplement, the prospectus and
the applicable pricing supplement will be issued under an indenture dated as of
August 26, 2002 (the 'indenture'), among CIT Group Inc., Bank One Trust Company,
N.A., as trustee (the 'trustee') and Bank One NA, London Branch, as London
paying agent and London calculation agent. The indenture is more fully described
in the prospectus. The indenture does not limit the aggregate amount of debt
securities that may be issued under it and provides that the debt securities may
be issued under it from time to time in one or more series. The following
statements are summaries of the material provisions of the indenture and the
notes. These summaries do not purport to be complete and are qualified in their
entirety by reference to the indenture, including for the definitions of certain
terms. The notes constitute a single series of debt securities for purposes of
the indenture and are limited to an aggregate principal amount of up to
$2,000,000,000. We may increase the foregoing limit, however, without the
consent of any holders of the notes, by appropriate corporate action if in the
future we wish to sell additional notes.
Notes issued in accordance with this prospectus supplement, the prospectus
and the applicable pricing supplement will have the following general
characteristics:
the notes will be our direct unsecured senior obligations and will rank
equally with all of our other unsecured senior indebtedness from time to
time outstanding;
the notes may be offered from time to time by us through the Purchasing
Agent and each note will mature on a day that is at least nine months from
its date of original issuance;
each note will bear interest from its date of original issuance at a fixed
rate per year;
the notes will not be subject to any sinking fund; and
the minimum denomination of the notes will be $1,000 (unless otherwise
stated in the pricing supplement).
In addition, the pricing supplement relating to each offering of notes will
describe specific terms of the notes, including:
the price, which may be expressed as a percentage of the aggregate initial
public offering price of the notes, at which the notes will be issued to
the public;
the date on which the notes will be issued to the public;
the stated maturity date of the notes;
the rate per year at which the notes will bear interest;
the interest payment frequency;
the purchase price, Purchasing Agent's discount and net proceeds to us;
S-21
whether the authorized representative of the holder of a beneficial
interest in the note will have the right to seek repayment upon the death
of the holder as described under ' -- Survivor's Option' on page S-24;
if the notes may be redeemed at our option or repaid at the option of the
holder prior to its stated maturity date, the provisions relating to any
such redemption or repayment;
any special U.S. Federal income tax consequences of the purchase, ownership
and disposition of the notes; and
any other significant terms of the notes not inconsistent with the
provisions of the indenture.
We may at any time purchase notes at any price or prices in the open market
or otherwise. Notes so purchased by us may, at our discretion, be held, resold
or surrendered to the trustee for cancellation.
PAYMENT OF PRINCIPAL AND INTEREST
Principal of and interest on beneficial interests in the notes will be made
in accordance with the arrangements then in place between the paying agent and
The Depository Trust Company ('DTC') and its participants as described under
'Registration and Settlement -- The Depository Trust Company' on page S-27.
Payments in respect of any notes in certificated form will be made as described
under 'Registration and Settlement -- Registration, Transfer and Payment of
Certificated Notes' on page S-30.
Interest on each note will be payable either monthly, quarterly,
semi-annually or annually on each interest payment date and at the note's stated
maturity or on the date of redemption or repayment if a note is redeemed or
repaid prior to maturity. Interest is payable to the person in whose name a note
is registered at the close of business on the regular record date before each
interest payment date. Interest due at a note's stated maturity or on a date of
redemption or repayment will be payable to the person to whom principal is
payable.
We will pay any administrative costs imposed by banks in connection with
making payments in immediately available funds, but any tax, assessment or
governmental charge imposed upon any payments on a note, including, without
limitation, any withholding tax, is the responsibility of the holders of
beneficial interests in the note in respect of which such payments are made.
INTEREST AND INTEREST RATES
Each note will accrue interest from its date of original issuance until its
stated maturity or earlier redemption or repayment. The applicable pricing
supplement will specify a fixed interest rate per year payable monthly,
quarterly, semi-annually or annually. Interest on the notes will be computed on
the basis of a 360-day year of twelve 30-day months. If the stated maturity
date, date of earlier redemption or repayment or interest payment date for any
note is not a business day, principal and interest for that note will be paid on
the next business day, and no interest will accrue on the amount payable from,
and after, the stated maturity date, date of earlier redemption or repayment or
interest payment date.
The interest rate on the notes will in no event be higher than the maximum
rate permitted by New York law as the same may be modified by United States law
of general application. Under present New York law, the maximum rate of interest
which may be charged to a corporation is 25% per year simple interest. This
limit does not apply to notes in a principal amount of U.S. $2,500,000 or more.
Interest on a note will be payable beginning on the first interest payment
date after its date of original issuance to holders of record on the
corresponding regular record date.
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PAYMENT OF INTEREST
Interest on the notes will be paid as follows:
INTEREST PAYMENT FREQUENCY INTEREST PAYMENT DATES
Monthly.............................. Fifteenth day of each calendar month, beginning in
the first calendar month following the month the
note was issued.
Quarterly............................ Fifteenth day of every third month, beginning in the
third calendar month following the month the note
was issued.
Semi-annually........................ Fifteenth day of every sixth month, beginning in the
sixth calendar month following the month the note
was issued.
Annually............................. Fifteenth day of every twelfth month, beginning in
the twelfth calendar month following the month the
note was issued.
The regular record date for any interest payment date will be the first day
of the calendar month in which the interest payment date occurs, except that the
regular record date for interest due on the note's stated maturity date or date
of earlier redemption or repayment will be that particular date.
'Business day' means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which commercial banks are authorized or
required by law, regulation or executive order to close in The City of New York.
REDEMPTION AND REPAYMENT
Unless we otherwise provide in the applicable pricing supplement, a note
will not be redeemable or repayable prior to its stated maturity date.
If the pricing supplement states that the note will be redeemable at our
option prior to its stated maturity date, then on such date or dates specified
in the pricing supplement, we may redeem those notes at our option either in
whole or from time to time in part, upon not less than 30 days' written notice
to the holder of those notes.
If the pricing supplement states that your note will be repayable at your
option prior to its stated maturity date, we will require receipt of notice of
the request for repayment at least 30 but not more than 60 days prior to the
date or dates specified in the pricing supplement. We also must receive the
completed form entitled 'Option to Elect Repayment.' Exercise of the repayment
option by the holder of a note is irrevocable.
Since the notes will be represented by a global note, DTC or its nominee
will be treated as the holder of the notes; therefore, other than the trustee
under the indenture, DTC or its nominee will be the only entity that receives
notices of redemption of notes from us, in the case of our redemption of notes,
and will be the only entity that can exercise the right to repayment of notes,
in the case of optional repayment. See 'Registration and Settlement' on
page S-27.
To ensure that DTC or its nominee will timely exercise a right to repayment
with respect to a particular beneficial interest in a note, the beneficial owner
of the interest in that note must instruct the broker or other direct or
indirect participant through which it holds the beneficial interest to notify
DTC or its nominee of its desire to exercise a right to repayment. Because
different firms have different cut-off times for accepting instructions from
their customers, each beneficial owner should consult the broker or other direct
or indirect participant through which it holds an interest in a note to
determine the cut-off time by which the instruction must be given for timely
notice to be delivered to DTC or its nominee. Conveyance of notices and other
communications by DTC or its nominee to participants, by participants to
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indirect participants and by participants and indirect participants to
beneficial owners of the notes will be governed by agreements among them and any
applicable statutory or regulatory requirements.
The redemption or repayment of a note normally will occur on the interest
payment date or dates following receipt of a valid notice. Unless otherwise
specified in the pricing supplement, the redemption or repayment price will
equal 100% of the principal amount of the note plus unpaid interest accrued to
the date or dates of redemption or repayment.
We may at any time purchase notes at any price or prices in the open market
or otherwise. We may also purchase notes otherwise tendered for repayment by a
holder or tendered by a holder's duly authorized representative through exercise
of the Survivor's Option described below. If we purchase the notes in this
manner, we have the discretion to either hold, resell or surrender the notes to
the trustee for cancellation.
SURVIVOR'S OPTION
The 'Survivor's Option' is a provision in a note pursuant to which we agree
to repay that note, if requested by the authorized representative of the
beneficial owner of that note, following the death of the beneficial owner of
the note, so long as the note was owned by that beneficial owner or the estate
of that beneficial owner at least six months prior to the request. The pricing
supplement relating to each offering of notes will state whether the Survivor's
Option applies to those notes.
If a note is entitled to a Survivor's Option, upon the valid exercise of the
Survivor's Option and the proper tender of that note for repayment, we will, at
our option, repay that note, in whole or in part, at a price equal to 100% of
the principal amount of the deceased beneficial owner's interest in that note
plus unpaid interest accrued to the date of repayment.
To be valid, the Survivor's Option must be exercised by or on behalf of the
person who has authority to act on behalf of the deceased beneficial owner of
the note (including, without limitation, the personal representative or executor
of the deceased beneficial owner or the surviving joint owner with the deceased
beneficial owner) under the laws of the applicable jurisdiction.
The death of a person holding a beneficial ownership interest in a note as a
joint tenant or tenant by the entirety with another person, or as a tenant in
common with the deceased holder's spouse, will be deemed the death of a
beneficial owner of that note, and the entire principal amount of the note so
held will be subject to repayment by us upon request. However, the death of a
person holding a beneficial ownership interest in a note as tenant in common
with a person other than such deceased holder's spouse will be deemed the death
of a beneficial owner only with respect to such deceased person's interest in
the note.
The death of a person who, during his or her lifetime, was entitled to
substantially all of the beneficial ownership interests in a note will be deemed
the death of the beneficial owner of that note for purposes of the Survivor's
Option, regardless of whether that beneficial owner was the registered holder of
that note, if entitlement to those interests can be established to the
satisfaction of the trustee. A beneficial ownership interest will be deemed to
exist in typical cases of nominee ownership, ownership under the Uniform
Transfers to Minors Act or Uniform Gifts to Minors Act, community property or
other joint ownership arrangements between a husband and wife. In addition, a
beneficial ownership interest will be deemed to exist in custodial and trust
arrangements where one person has all of the beneficial ownership interests in
the applicable note during his or her lifetime.
S-24
We have the discretionary right to limit the aggregate principal amount of
notes as to which exercises of the Survivor's Option shall be accepted by us
from authorized representatives of all deceased beneficial owners in any
calendar year to an amount equal to the greater of $2,000,000 or 2% of the
principal amount of all notes outstanding as of the end of the most recent
calendar year. We also have the discretionary right to limit to $250,000 in any
calendar year the aggregate principal amount of notes as to which exercises of
the Survivor's Option shall be accepted by us from the authorized representative
of any individual deceased beneficial owner of notes in such calendar year. In
addition, we will not permit the exercise of the Survivor's Option except in
principal amounts of $1,000 and multiples of $1,000.
An otherwise valid election to exercise the Survivor's Option may not be
withdrawn. Each election to exercise the Survivor's Option will be accepted in
the order that elections are received by the trustee, except for any note the
acceptance of which would contravene any of the limitations described in the
preceding paragraph. Notes accepted for repayment through the exercise of the
Survivor's Option normally will be repaid on the first interest payment date
that occurs 20 or more calendar days after the date of the acceptance. For
example, if the acceptance date of a note tendered through a valid exercise of
the Survivor's Option is November 1, 2002, and interest on that note is paid
monthly, we would normally, at our option, repay that note on the interest
payment date occurring on December 15, 2002, because the November 15, 2002
interest payment date would occur less than 20 days from the date of acceptance.
Each tendered note that is not accepted in any calendar year due to the
application of any of the limitations described in the preceding paragraph will
be deemed to be tendered in the following calendar year in the order in which
all such notes were originally tendered. If a note tendered through a valid
exercise of the Survivor's Option is not accepted, the trustee will deliver a
notice by first-class mail to the registered holder, at that holder's last known
address as indicated in the note register, that states the reason that note has
not been accepted for repayment.
With respect to notes represented by a global note, DTC or its nominee is
treated as the holder of the notes and will be the only entity that can exercise
the Survivor's Option for such notes. To obtain repayment pursuant to exercise
of the Survivor's Option for a note, the deceased beneficial owner's authorized
representative must provide the following items to the broker or other entity
through which the beneficial interest in the note is held by the deceased
beneficial owner:
a written instruction to such broker or other entity to notify DTC of the
authorized representative's desire to obtain repayment pursuant to exercise
of the Survivor's Option;
appropriate evidence satisfactory to the trustee (a) that the deceased was
the beneficial owner of the note at the time of death and his or her
interest in the note was owned by the deceased beneficial owner or his or
her estate at least six months prior to the request for repayment,
(b) that the death of the beneficial owner has occurred, (c) of the date of
death of the beneficial owner, and (d) that the representative has
authority to act on behalf of the beneficial owner;
if the interest in the note is held by a nominee of the deceased beneficial
owner, a certificate satisfactory to the trustee from the nominee attesting
to the deceased's beneficial ownership of such note;
a written request for repayment signed by the authorized representative of
the deceased beneficial owner with the signature guaranteed by a member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust
company having an office or correspondent in the United States;
if applicable, a properly executed assignment or endorsement;
S-25
tax waivers and any other instruments or documents that the trustee
reasonably requires in order to establish the validity of the beneficial
ownership of the note and the claimant's entitlement to payment; and
any additional information the trustee reasonably requires to evidence
satisfaction of any conditions to the exercise of the Survivor's Option or
to document beneficial ownership or authority to make the election and to
cause the repayment of the note.
In turn, the broker or other entity will deliver each of these items to the
trustee, together with evidence satisfactory to the trustee from the broker or
other entity stating that it represents the deceased beneficial owner.
We retain the right to limit the aggregate principal amount of notes as to
which exercises of the Survivor's Option applicable to the notes will be
accepted in any one calendar year as described above. All other questions
regarding the eligibility or validity of any exercise of the Survivor's Option
will be determined by the trustee, in its sole discretion, which determination
will be final and binding on all parties.
The broker or other entity will be responsible for disbursing payments
received from the trustee to the authorized representative. See 'Registration
and Settlement' on page S-27.
Forms for the exercise of the Survivor's Option may be obtained from the
trustee at Bank One Trust Company, N.A., 1 Bank One Plaza, Chicago, Illinois,
60670, Attention: Corporate Trust.
If applicable, we will comply with the requirements of Section 14(e) of the
Exchange Act, and the rules promulgated thereunder, and any other securities
laws or regulations in connection with any repayment of notes at the option of
the registered holders or beneficial owners thereof.
MEETING OF NOTEHOLDERS
The indenture contains provisions (which shall have effect as if
incorporated in the notes) for calling meetings of the holders of the notes and
other debt securities issued pursuant to the indenture to consider matters
affecting their interests, including, without limitation, the modification of
the terms of the notes or the waiver of any default under the terms of the notes
or the indenture. CIT or the holders of at least 10% in aggregate principal
amount of the notes then outstanding of any series or all series may request
that the trustee call a meeting of the holders of the notes of that series or
all series, respectively. The quorum for any meeting of the holders of the notes
is the presence of the holders of notes who are entitled to vote in aggregate
principal amount sufficient to take action upon the business for which such
meeting was called. A resolution passed at a duly called and constituted meeting
of debt securityholders will be binding on the holders of all debt securities
issued pursuant to the indenture, whether or not they are present at the
meeting.
REPLACEMENT OF NOTES
If any mutilated note is surrendered to the trustee, we will execute and the
trustee will authenticate and deliver in exchange for such mutilated note a new
note of the same series and principal amount. If the trustee and we receive
evidence to our satisfaction of the destruction, loss or theft of any note and
such security or indemnity as may be required by them, then we shall execute and
the trustee shall authenticate and deliver, in lieu of such destroyed, lost or
stolen note, a new note of the same series and principal amount. All expenses
(including counsel fees and expenses) associated with issuing the new note shall
be borne by the owner of the mutilated, destroyed, lost or stolen note.
S-26
REOPENING OF ISSUE
We may, from time to time, without the consent of existing noteholders,
reopen an issue of notes and issue additional notes with the same terms
(including maturity and interest payment terms) as notes issued on an earlier
date, except for the issue date, issue price and the first payment of interest.
After such additional notes are issued, they will be fungible with the
previously issued notes to the extent specified in the applicable pricing
supplement.
REGISTRATION AND SETTLEMENT
THE DEPOSITORY TRUST COMPANY
All of the notes we offer will be issued in book-entry only form. This means
that we will not issue certificates for notes, except in the limited cases
described below. Instead, we will issue global notes in registered form. Each
global note will be held through DTC and will be registered in the name of Cede
& Co., as nominee of DTC. Accordingly, Cede & Co. will be the holder of record
of the notes. Each note represented by a global note evidences a beneficial
interest in that global note.
Beneficial interests in a global note will be shown on, and transfers are
effected through, records maintained by DTC or its participants. In order to own
a beneficial interest in a note, you must be an institution that has an account
with DTC or have a direct or indirect account with such an institution.
Transfers of ownership interests in the notes will be accomplished by making
entries in DTC participants' books acting on behalf of beneficial owners.
So long as DTC or its nominee is the registered holder of a global note, DTC
or its nominee, as the case may be, will be the sole holder and owner of the
notes represented thereby for all purposes, including payment of principal and
interest, under the indenture. Except as otherwise provided below, you will not
be entitled to receive physical delivery of certificated notes and will not be
considered the holder of the notes for any purpose under the indenture.
Accordingly, you must rely on the procedures of DTC and the procedures of the
DTC participant through which you own your note in order to exercise any rights
of a holder of a note under the indenture. The laws of some jurisdictions
require that certain purchasers of notes take physical delivery of such notes in
certificated form. Those limits and laws may impair the ability to transfer
beneficial interests in the notes.
Each global note representing notes will be exchangeable for certificated
notes of like tenor and terms and of differing authorized denominations in a
like aggregate principal amount, only if (1) DTC notifies us that it is
unwilling or unable to continue as depositary for the global notes or we become
aware that DTC has ceased to be a clearing agency registered under the Exchange
Act and, in any such case we fail to appoint a successor to DTC within 60
calendar days, (2) we, in our sole discretion, determine that the global notes
shall be exchangeable for certificated notes or (3) an event of default has
occurred and is continuing with respect to the notes under the indenture. Upon
any such exchange, the certificated notes shall be registered in the names of
the beneficial owners of the global note representing the notes.
The following is based on information furnished by DTC:
DTC will act as securities depositary for the notes. The notes will be
issued as fully-registered notes registered in the name of Cede & Co. (DTC's
partnership nominee) or such other name as may be requested by an authorized
representative of DTC. Generally, one fully registered global note will be
issued for all of the principal amount of the notes. If, however, the aggregate
principal amount of the notes exceeds $500,000,000, one certificate will be
issued with respect to each $500,000,000 of principal
S-27
amount, and an additional certificate will be issued with respect to any
remaining principal amount of such note.
DTC, the world's largest depositary, is a limited-purpose trust company
organized under the New York Banking Law, a 'banking organization' within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
'clearing corporation' within the meaning of the New York Uniform Commercial
Code, and a 'clearing agency' registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC holds and provides asset servicing for over
2 million issues of U.S. and non-U.S. equity issues, corporate and municipal
debt issues and money market instruments from over 85 countries that DTC's
direct participants deposit with DTC.
DTC also facilitates the post-trade settlement among direct participants of
sales and other securities transactions in deposited securities through
electronic computerized book-entry transfers and pledges between direct
participants' accounts. This eliminates the need for physical movement of
securities certificates. Direct participants include both U.S. and non-U.S.
securities brokers and dealers, banks, trust companies, clearing corporations,
and certain other organizations. DTC is a wholly-owned subsidiary of The
Depository Trust & Clearing Corporation ('DTCC'). DTCC, in turn, is owned by a
number of direct participants of DTC and members of the National Securities
Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing
Corporation, and Emerging Markets Clearing Corporation, as well as by The New
York Stock Exchange, Inc., the American Stock Exchange LLC, and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as both U.S. and non-U.S. securities brokers and
dealers, banks, trust companies and clearing corporations that clear through or
maintain a custodial relationship with a direct participant, either directly or
indirectly. DTC has Standard & Poor's highest rating: AAA. The DTC rules
applicable to its participants are on file with the SEC. More information about
DTC can be found at www.dtcc.com.
Purchases of the notes under the DTC system must be made by or through
direct participants, which will receive a credit for the notes on DTC's records.
The beneficial interest of each actual purchaser of each note is in turn to be
recorded on the direct and indirect participants' records. Beneficial owners
will not receive written confirmation from DTC of their purchase. Beneficial
owners are, however, expected to receive written confirmations providing details
of the transaction, as well as periodic statements of their holdings, from the
direct or indirect participant through which the beneficial owner entered into
the transaction. Transfers of beneficial interests in the notes are to be
accomplished by entries made on the books of direct and indirect participants
acting on behalf of beneficial owners. Beneficial owners will not receive
certificates representing their beneficial interests in notes, except in the
event that use of the book-entry system for the notes is discontinued.
To facilitate subsequent transfers, all notes deposited by direct
participants with DTC will be registered in the name of DTC's partnership
nominee, Cede & Co. or such other name as may be requested by an authorized
representative of DTC. The deposit of the notes with DTC and their registration
in the name of Cede & Co. or such other nominee do not effect any change in
beneficial ownership. DTC has no knowledge of the actual beneficial owners of
the notes; DTC's records reflect only the identity of the direct participants to
whose accounts such notes will be credited, which may or may not be the
beneficial owners. The direct and indirect participants will remain responsible
for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants, and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in
S-28
effect from time to time. Beneficial owners of the notes may wish to take
certain steps to augment the transmission to them of notices of significant
events with respect to the notes, such as redemption, tenders, defaults, and
proposed amendments to the security documents. For example, beneficial owners of
the notes may wish to ascertain that the nominee holding the notes for their
benefit has agreed to obtain and transmit notices to beneficial owners. In the
alternative, beneficial owners may wish to provide their names and addresses to
the registrar of the notes and request that copies of the notices be provided to
them directly. Any such request may or may not be successful.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote
with respect to the notes unless authorized by a direct participant in
accordance with DTC's procedures. Under its usual procedures, DTC mails an
Omnibus Proxy to us as soon as possible after the regular record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those direct
participants to whose accounts the notes are credited on the record date
(identified in a listing attached to the Omnibus Proxy).
We will pay principal and or interest payments on the notes in same-day
funds directly to Cede & Co., or such other nominee as may be requested by an
authorized representative of DTC. DTC's practice is to credit direct
participants' accounts on the applicable payment date in accordance with their
respective holdings shown on DTC's records upon DTC's receipt of funds and
corresponding detail information. Payments by participants to beneficial owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in 'street name,' and will be the responsibility of these
participants and not of DTC or any other party, subject to any statutory or
regulatory requirements that may be in effect from time to time. Payment of
principal and interest to Cede & Co., or such other nominee as may be requested
by an authorized representative of DTC, is our responsibility, disbursement of
such payments to direct participants is the responsibility of DTC, and
disbursement of such payments to the beneficial owners is the responsibility of
the direct or indirect participant.
We will send any redemption notices to DTC. If less than all of the notes
are being redeemed, DTC's practice is to determine by lot the amount of the
interest of each direct participant in such issue to be redeemed.
A beneficial owner, or its authorized representative, shall give notice to
elect to have its notes repaid by us, through its direct or indirect
participant, to the trustee, and shall effect delivery of such notes by causing
the direct participant to transfer that participant's interest in the global
note representing such notes, on DTC's records, to the trustee. The requirement
for physical delivery of notes in connection with a demand for repayment will be
deemed satisfied when the ownership rights in the global note representing such
notes are transferred by the direct participants on DTC's records.
DTC may discontinue providing its services as securities depository for the
notes at any time by giving us reasonable notice. Under such circumstances, if a
successor securities depositary is not obtained, we will print and deliver
certificated notes. We may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event, we
will print and deliver certificated notes.
The information in this section concerning DTC and DTC's system has been
obtained from sources that we believe to be reliable, but neither we, the
Purchasing Agent nor any agent takes any responsibility for its accuracy.
S-29
REGISTRATION, TRANSFER AND PAYMENT OF CERTIFICATED NOTES
We do not intend to issue certificated notes. If we ever issue notes in
certificated form, those notes may be presented for registration, transfer and
payment at the office of the registrar or at the office of any transfer agent
designated and maintained by us. We have originally designated Bank One Trust
Company, N.A. to act in those capacities for the notes. The registrar or
transfer agent will make the transfer or registration only if it is satisfied
with the documents of title and identity of the person making the request. There
will not be a service charge for any exchange or registration of transfer of the
notes, but we may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with the exchange. At any
time, we may change transfer agents or approve a change in the location through
which any transfer agent acts. We also may designate additional transfer agents
for any notes at any time.
We will not be required to: (1) issue, exchange or register the transfer of
any note to be redeemed for a period of 15 days after the selection of the notes
to be redeemed; (2) exchange or register the transfer of any note that was
selected, called or is being called for redemption, except the unredeemed
portion of any note being redeemed in part; or (3) exchange or register the
transfer of any note as to which an election for repayment by the holder has
been made, except the unrepaid portion of any note being repaid in part.
We will pay principal of and interest on any certificated notes at the
offices of the paying agents we may designate from time to time. Generally, we
will pay interest on a note by check on any interest payment date other than at
stated maturity or upon earlier redemption or repayment to the person in whose
name the note is registered at the close of business on the regular record date
for that payment. We will pay principal and interest at stated maturity or upon
earlier redemption or repayment in same-day funds against presentation and
surrender of the applicable notes.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain material U.S. Federal income tax
consequences of the purchase, ownership and disposition of the notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding notes as a hedge against currency
risks or as a position in a 'straddle' for tax purposes, persons whose
functional currency is not the U.S. dollar, or persons who are not U.S. Holders.
It also does not deal with holders other than original purchasers (except where
otherwise specifically noted). Persons considering the purchase of the notes
should consult their own tax advisors concerning the application of U.S. Federal
income tax laws to their particular situations as well as any consequences of
the purchase, ownership and disposition of the notes arising under the laws of
any other taxing jurisdiction.
As used herein, the term 'U.S. Holder' means a beneficial owner of a note
that is for U.S. Federal income tax purposes (1) a citizen or resident of the
United States, (2) a corporation or partnership (including an entity treated as
a corporation or partnership for U.S. Federal income tax purposes) created or
organized in or under the laws of the United States, any state thereof or the
District of Columbia (other than a partnership that is not treated as a U.S.
person under any applicable Treasury regulations), (3) an estate whose income is
subject to U.S. federal income tax regardless of its source, (4) a trust if a
court within the U.S. is able to exercise primary supervision over the
administration of the trust and one
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or more U.S. persons have the authority to control all substantial decisions of
the trust or (5) any other person whose income or gain in respect of a note is
effectively connected with the conduct of a U.S. trade or business.
Notwithstanding the preceding clause (4), to the extent provided in regulations,
certain trusts in existence on August 20, 1996 and treated as U.S. persons prior
to such date that elect to continue to be so treated also shall be considered
U.S. Holders.
PAYMENTS OF INTEREST
Payments of interest on a note generally will be taxable to a U.S. Holder as
ordinary income at the time such payments are accrued or are received (in
accordance with the U.S. Holder's regular method of tax accounting).
ORIGINAL ISSUE DISCOUNT
The following summary is a general discussion of the material U.S. Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of notes issued with original issue discount ('original issue
discount notes'). The following summary is based upon Treasury regulations (the
'OID Regulations') released by the Internal Revenue Service ('IRS') under the
original issue discount provisions of the Internal Revenue Code of 1986, as
amended (the 'Code').
For U.S. Federal income tax purposes, original issue discount is the excess
of the stated redemption price at the stated maturity of a note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the note's stated redemption price at maturity multiplied by the number of
complete years to its stated maturity from its issue date or, in the case of a
note providing for the payment of any amount other than qualified stated
interest (as defined below) prior to stated maturity, multiplied by the weighted
average maturity of such note). The issue price of each note in an issue of
notes equals the first price at which a substantial amount of such notes has
been sold (ignoring sales to bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents, or
wholesalers). The stated redemption price at maturity of a note is the sum of
all payments provided by the note other than 'qualified stated interest'
payments. The term 'qualified stated interest' generally means stated interest
that is unconditionally payable in cash or property (other than debt instruments
of the issuer) at least annually at a single fixed rate. In addition, under the
OID Regulations, if a note bears interest for one or more accrual periods at a
rate below the rate applicable for the remaining term of such note (e.g., notes
with teaser rates or interest holidays), and if the greater of either the
resulting foregone interest on such note or any 'true' discount on such note
(i.e., the excess of the note's stated principal amount over its issue price)
equals or exceeds a specified de minimis amount, then all or a portion of the
stated interest on the note would be treated as original issue discount rather
than qualified stated interest.
Payments of qualified stated interest on a note are taxable to a U.S. Holder
as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an original issue discount note having a maturity
upon issuance of more than one year must include original issue discount in
income as ordinary interest for U.S. Federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash payments
attributable to such income, regardless of such U.S. Holder's regular method of
tax accounting. In general, the amount of original issue discount included in
income by the initial U.S. Holder of an original issue discount note is the sum
of the daily portions of original issue discount with respect to such original
issue discount note for each day during the taxable year (or portion of the
taxable year)
S-31
on which such U.S. Holder held such original issue discount note. The 'daily
portion' of original issue discount on any original issue discount note is
determined by allocating to each day in any accrual period a ratable portion of
the original issue discount allocable to that accrual period. An 'accrual
period' may be of any length and the accrual periods may vary in length over the
term of the original issue discount note, provided that each accrual period is
no longer than one year and each scheduled payment of principal or interest
occurs either on the final day of an accrual period or on the first day of an
accrual period. The amount of original issue discount allocable to each accrual
period is generally equal to the difference between (1) the product of the
original issue discount note's adjusted issue price at the beginning of such
accrual period and its yield to maturity (determined on the basis of compounding
at the close of each accrual period and appropriately adjusted to take into
account the length of the particular accrual period) and (2) the amount of any
qualified stated interest payments allocable to such accrual period. The
'adjusted issue price' of an original issue discount note at the beginning of
any accrual period is the sum of the issue price of the original issue discount
note plus the amount of original issue discount allocable to all prior accrual
periods minus the amount of any prior payments on the original issue discount
note that were not qualified stated interest payments. Under these rules, U.S.
Holders generally will have to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
A U.S. Holder who purchases an original issue discount note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the original issue discount
note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the original issue discount note at an
'acquisition premium.' Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross income
with respect to such original issue discount note for any taxable year (or
portion thereof in which the U.S. Holder holds the original issue discount note)
will be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Certain of the notes (1) may be redeemable at our option prior to their
stated maturity (a 'call option') and/or (2) may be repayable at the option of
the holder prior to their stated maturity (a 'put option'). Notes containing
such features (including the Survivor's Option) may be subject to rules that
differ from the general rules discussed above. Investors intending to purchase
notes with such features should consult their own tax advisors, since the
original issue discount consequences will depend, in part, on the particular
terms and features of the purchased notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions. U.S. Holders should consult with their own tax
advisors about this election.
SHORT-TERM NOTES
Notes that have a fixed maturity of one year or less ('short-term notes')
will be treated as having been issued with original issue discount. In general,
an individual or other cash method U.S. Holder is not required to include
accrued original issue discount with respect to a short-term note in such U.S.
Holder's income currently unless the U.S. Holder elects to do so. If such an
election is not made, any gain recognized by the U.S. Holder on the sale,
exchange or maturity of the short-term note will be ordinary
S-32
income to the extent of the original issue discount accrued on a straight-line
basis, or upon election under the constant yield method (based on daily
compounding), through the date of sale or stated maturity, and a portion of the
deductions otherwise allowable to the U.S. Holder for interest on borrowings
allocable to the short-term note will be deferred until a corresponding amount
of income is realized. U.S. Holders who report income for U.S. Federal income
tax purposes under the accrual method, and certain other holders including banks
and dealers in securities, are required to accrue original issue discount on a
short-term note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
MARKET DISCOUNT
If a U.S. Holder purchases a note, other than an original issue discount
note, for an amount that is less than its issue price (or, in the case of a
subsequent purchaser, its stated redemption price at maturity) or, in the case
of an original issue discount note, for an amount that is less than its adjusted
issue price as of the purchase date, such U.S. Holder will be treated as having
purchased such note at a 'market discount,' unless such market discount is less
than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of an original issue discount note,
any payment that does not constitute qualified stated interest) on, or any gain
realized on the sale, exchange, retirement or other disposition of, a note as
ordinary income to the extent of the lesser of (1) the amount of such payment or
realized gain or (2) the market discount which has not previously been included
in income and is treated as having accrued on such note at the time of such
payment or disposition. Market discount will be considered to accrue ratably
during the period from the date of acquisition to the stated maturity date of
the note, unless the U.S. Holder elects to accrue market discount on the
constant interest method.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a note with market discount until the stated maturity of the
note or certain earlier dispositions, because a current deduction is only
allowed to the extent the interest expense exceeds an allocable portion of
market discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or constant interest basis), in
which case the rules described above regarding the treatment as ordinary income
of gain upon the disposition of the note and upon the receipt of certain cash
payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for U.S. Federal income tax purposes. Such an election will apply to
all debt instruments acquired by the U.S. Holder on or after the first day of
the first taxable year to which such election applies and may be revoked only
with the consent of the IRS.
PREMIUM
If a U.S. Holder purchases a note for an amount that is greater than the sum
of all amounts payable on the note after the purchase date other than payments
of qualified stated interest, such U.S. Holder will be considered to have
purchased the note with 'amortizable bond premium' equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the note and may offset interest otherwise
required to be included in respect of the note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the
S-33
amortization of some bond premium until later in the term of the note. Any
election to amortize bond premium applies to all taxable debt instruments held
by the U.S. Holder on or after the first day of the first taxable year to which
such election applies and may be revoked only with the consent of the IRS.
DISPOSITION OF A NOTE
Upon the sale, exchange or retirement of a note, a U.S. Holder generally
will recognize taxable gain or loss equal to the difference between the amount
realized on the sale, exchange or retirement (other than amounts representing
accrued and unpaid interest) and such U.S. Holder's adjusted tax basis in the
note. A U.S. Holder's adjusted tax basis in a note generally will equal such
U.S. Holder's initial investment in the note increased by any original issue
discount included in income (and accrued market discount, if any, if the U.S.
Holder has included such market discount in income) and decreased by the amount
of any payments, other than qualified stated interest payments, received and
amortizable bond premium taken with respect to such note. Such gain or loss
generally will be long-term capital gain or loss if the note was held for more
than one year. Non-corporate taxpayers are subject to reduced maximum rates on
long-term capital gains and are generally subject to tax at ordinary income
rates on short-term capital gains. The deductibility of capital losses is
subject to certain limitations. Prospective investors should consult their own
tax advisors concerning these tax law provisions.
If a U.S. Holder disposes of only a portion of a note pursuant to a
redemption or repayment (including the Survivor's Option, if applicable), such
disposition may be treated as a pro rata prepayment in retirement of a portion
of a debt instrument. Generally, the resulting gain or loss would be calculated
by assuming that the original note being tendered consists of two instruments,
one that is retired (or repaid), and one that remains outstanding. The adjusted
issue price and the U.S. Holder's adjusted basis, determined immediately before
the pro rata prepayment, would be allocated between these two instruments based
on the portion of the instrument that is treated as retired by the pro rata
prepayment.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of U.S. Federal income tax at the applicable rate may
apply to payments of principal, premium and interest on a note, and to payments
of proceeds of the sale or redemption of a note, to registered owners who are
not 'exempt recipients' and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. The backup
withholding rate is 30% (subject to periodic reductions through 2006). Payments
made in respect of the notes to a U.S. Holder must be reported to the IRS,
unless the U.S. Holder is an exempt recipient or establishes an exemption.
Any amounts withheld under the backup withholding rules will be allowed as a
credit against the U.S. Holder's U.S. Federal income tax liability and may
entitle the U.S. Holder to a refund, provided that the required information is
furnished to the IRS.
EMPLOYEE RETIREMENT INCOME SECURITY ACT
A fiduciary of a pension plan or other employee benefit plan (including a
governmental plan, an individual retirement account or a Keogh plan) proposing
to invest in the notes should consider this section carefully.
S-34
A fiduciary of an employee benefit plan subject to the Employee Retirement
Income Security Act of 1974, as amended (commonly referred to as 'ERISA') should
consider fiduciary standards under ERISA in the context of the particular
circumstances of such plan before authorizing an investment in the notes. Such
fiduciary should consider whether the investment is in accordance with the
documents and instruments governing the plan.
In addition, ERISA and the Code prohibit certain transactions (referred to
as 'prohibited transactions') involving the assets of a plan subject to ERISA or
the assets of an individual retirement account or plan subject to Section 4975
of the Code (referred to as an 'ERISA plan'), on the one hand, and persons who
have certain specified relationships to the plan ('parties in interest' within
the meaning of ERISA or 'disqualified persons' within the meaning of the Code),
on the other. If we (or an affiliate) are considered a party in interest or
disqualified person with respect to an ERISA plan, then the investment in notes
by the ERISA plan may give rise to a prohibited transaction.
By purchasing and holding the notes, the person making the decision to
invest on behalf of an ERISA plan is representing that the purchase and holding
of the notes will not result in a prohibited transaction under ERISA or the
Code. Therefore, an ERISA plan should not invest in the notes unless the plan
fiduciary or other person acquiring securities on behalf of the ERISA plan
determines that neither we nor an affiliate is a party in interest or a
disqualified person or, alternatively, that an exemption from the prohibited
transaction rules is available. If an ERISA plan engages in a prohibited
transaction, the transaction may require 'correction' and may cause the ERISA
plan fiduciary to incur certain liabilities and the parties in interest or
disqualified persons to be subject to excise taxes.
If you are the fiduciary of a pension plan or other ERISA plan, or an
insurance company that is providing investment advice or other features to a
pension plan or other ERISA plan, and you propose to invest in the notes with
the assets of the ERISA plan, you should consult your own legal counsel for
further guidance.
PLAN OF DISTRIBUTION
Under the terms of the selling agent agreement, the notes will be offered
from time to time by us to the Purchasing Agent for subsequent resale to the
agents and other dealers who are broker-dealers and securities firms. The
agents, including the Purchasing Agent, are parties to the selling agent
agreement. The notes will be offered for sale in the United States only. Dealers
who are members of the selling group have executed a master selected dealer
agreement with the Purchasing Agent. We also may appoint additional agents to
sell the notes. Any sale of the notes through those additional agents, however,
will be on the same terms and conditions to which the original agents have
agreed. The Purchasing Agent will purchase the notes at a discount ranging from
0.2% to 3.0% of the non-discounted price for each note sold. However, we also
may sell the notes to the Purchasing Agent at a discount greater than or less
than the range specified above. The discount at which we sell the notes to the
Purchasing Agent will be set forth in the applicable pricing supplement. The
Purchasing Agent also may sell notes to dealers at a concession not in excess of
the discount it received from us. In certain cases, the Purchasing Agent and the
other agents and dealers may agree that the Purchasing Agent will retain the
entire discount. We will disclose any particular arrangements in the applicable
pricing supplement.
Following the solicitation of orders, each of the agents, severally and not
jointly, may purchase notes as principal for its own account from the Purchasing
Agent. Unless otherwise set forth in the applicable pricing supplement, these
notes will be purchased by the agents and resold by them to one or more
investors at a fixed public offering price. After the initial public offering of
notes, the public offering price
S-35
(in the case of notes to be resold at a fixed public offering price), discount
and concession may be changed.
We have the sole right to accept offers to purchase notes and may reject any
proposed offer to purchase notes in whole or in part. Each agent also has the
right, in its discretion reasonably exercised, to reject any proposed offer to
purchase notes in whole or in part. We reserve the right to withdraw, cancel or
modify any offer without notice. We also may change the terms, including the
interest rate we will pay on the notes, at any time prior to our acceptance of
an offer to purchase.
Each agent, including the Purchasing Agent, may be deemed to be an
'underwriter' within the meaning of the Securities Act of 1933, as amended (the
'Securities Act'). We have agreed to indemnify the agents against certain
liabilities, including liabilities under the Securities Act, or to contribute to
any payments they may be required to make in respect of such liabilities. We
also have agreed to reimburse the agents for certain expenses.
No note will have an established trading market when issued. We do not
intend to apply for the listing of the notes on any securities exchange.
However, we have been advised by the agents that they may purchase and sell
notes in the secondary market as permitted by applicable laws and regulations.
The agents are not obligated to make a market in the notes, and they may
discontinue making a market in the notes at any time without notice. Neither we
nor the agents can provide any assurance regarding the development, liquidity or
maintenance of any trading market for any notes. All secondary trading in the
notes will settle in same-day funds. See 'Registration and Settlement' on
page S-27.
In connection with certain offerings of notes, the rules of the SEC permit
the Purchasing Agent to engage in transactions that may stabilize the price of
the notes. The Purchasing Agent will conduct these activities for the agents.
These transactions may consist of short sales, stabilizing transactions and
purchases to cover positions created by short sales. A short sale is the sale by
the Purchasing Agent of a greater amount of notes than the amount the Purchasing
Agent has agreed to purchase in connection with a specific offering of notes.
Stabilizing transactions consist of certain bids or purchases made by the
Purchasing Agent to prevent or retard a decline in the price of the notes while
an offering of notes is in process. In general, these purchases or bids for the
notes for the purpose of stabilization or to reduce a syndicate short position
could cause the price of the notes to be higher than it might otherwise be in
the absence of those purchases or bids. Neither we nor the Purchasing Agent
makes any representation or prediction as to the direction or magnitude of any
effect that these transactions may have on the price of any notes. In addition,
neither we nor the Purchasing Agent makes any representation that, once
commenced, these transactions will not be discontinued without notice. The
Purchasing Agent is not required to engage in these activities and may end any
of these activities at any time.
The agents or dealers to or through which we may sell notes may engage in
transactions with us and perform services for us in the ordinary course of
business.
LEGAL MATTERS
The validity of the notes offered will be passed upon for us by Schulte Roth
& Zabel LLP, New York, New York. Certain legal matters in connection with the
notes will be passed upon for the agents by Wilmer, Cutler & Pickering,
Washington, D.C.
S-36
OTHER GENERAL INFORMATION
The notes, the indenture, and the selling agent agreement are governed by,
and are to be construed in accordance with, the laws of the State of New York
and of the United States, applicable to agreements made and to be performed
wholly within those jurisdictions.
This prospectus supplement and the prospectus may be used only for the
purposes for which they were published. This prospectus supplement and the
prospectus together represent an offer to sell the notes but only under
circumstances and in jurisdictions where it is lawful to do so.
We will identify in the applicable pricing supplement whether the notes have
been accepted for clearance through the DTC. The CUSIP or the identification
number for any other relevant clearing system for each series of notes will be
set out in the relevant pricing supplement.
S-37
PROSPECTUS
[CIT LOGO]
CIT GROUP INC.
DEBT SECURITIES
-------------------
We may issue up to an aggregate of $11,478,000,000 of debt securities in one
or more series with the same or different terms.
When we offer specific debt securities, we will disclose the terms of those
debt securities in a prospectus supplement that accompanies this prospectus. The
prospectus supplement may also add, update and modify information contained or
incorporated by reference in this prospectus. BEFORE YOU MAKE YOUR INVESTMENT
DECISION, WE URGE YOU TO CAREFULLY READ THIS PROSPECTUS AND THE PROSPECTUS
SUPPLEMENT DESCRIBING THE SPECIFIC TERMS OF ANY OFFERING, TOGETHER WITH
ADDITIONAL INFORMATION DESCRIBED UNDER THE HEADING 'WHERE YOU CAN FIND MORE
INFORMATION.'
These debt securities may be either senior or senior subordinated in
priority of payment and will be direct unsecured obligations.
The terms of any debt securities offered to the public will depend on market
conditions at the time of sale. We reserve the sole right to accept or reject,
in whole or in part, any proposed purchase of the debt securities that we offer.
-------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF OFFERED SECURITIES
UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 13, 2002
TABLE OF CONTENTS
PAGE
----
CIT GROUP INC............................................... 3
RATIOS OF EARNINGS TO FIXED CHARGES......................... 14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 15
USE OF PROCEEDS............................................. 16
DESCRIPTION OF DEBT SECURITIES.............................. 17
PLAN OF DISTRIBUTION........................................ 23
EXPERTS..................................................... 24
LEGAL OPINIONS.............................................. 25
WHERE YOU CAN FIND MORE INFORMATION......................... 25
2
CIT GROUP INC.
GENERAL
CIT is a leading global commercial and consumer finance company that has
been a consistent provider of financing and leasing capital since 1908. With
about $48 billion of managed assets, we have the financial resources,
intellectual capital and product knowledge to serve the needs of our clients
across a wide variety of industries. Our clients range from small private
companies to many of the world's largest and most respected multinational
corporations.
We commenced operations in 1908 and have developed a broad array of
'franchise' businesses that focus on specific industries, asset types and
markets, which are balanced by client, industry and geographic diversification.
We had $4.5 billion of shareholder's equity at June 30, 2002.
On June 1, 2001, CIT was acquired by a wholly-owned subsidiary of Tyco
International Ltd. ('Tyco'), a diversified manufacturing and service company, in
a purchase business combination recorded under the 'push-down' method of
accounting, resulting in a new basis of accounting for the 'successor' period
beginning June 2, 2001. Information relating to all 'predecessor' periods prior
to the acquisition is presented using CIT's historical basis of accounting.
Following the acquisition, we changed our fiscal year end from December 31 to
September 30 to conform with that of Tyco. On September 30, 2001, we sold
certain international subsidiaries that had assets of approximately
$1.8 billion and liabilities of $1.5 billion to a non-U.S. subsidiary of Tyco
for a promissory note equal to the net book value. Our earnings included the
results of these subsidiaries through September 30, 2001. On February 11, 2002,
CIT repurchased these international subsidiaries for a purchase price equal to
the net book value. The financial information presented in this section includes
the international subsidiaries repurchased from Tyco for all periods presented;
as a result, the Balance Sheet Data at September 30, 2001 varies slightly from
comparable data reported in CIT's Form 10-K for the transition period ended
September 30, 2001.
On July 8, 2002, Tyco completed a sale of 100% of CIT's common stock in an
initial public offering. Immediately prior to the offering, a restructuring was
effectuated whereby our predecessor CIT Group Inc., a Nevada corporation (which
is referred to in this prospectus as CIT Group Inc. (Nevada)) was merged with
and into its parent Tyco Capital Holding, Inc., and that combined entity was
further merged with and into CIT Group Inc. (Del), a Delaware corporation. In
connection with the reorganization, CIT Group Inc. (Del) was renamed CIT Group
Inc. As a result of the reorganization, CIT is the successor to CIT Group Inc.
(Nevada)'s business, operations, obligations and SEC registration.
We have divested over $5 billion of non-core, less profitable assets and
reduced annual operating expenses by $150 million over the last year. These
improvements will allow us to continue to effectively execute our strategy
across our broad range of businesses.
The financial data in this section reflects the four business segments that
comprise CIT, as follows:
Equipment Financing and Leasing
Specialty Finance
Commercial Finance
Structured Finance
We conduct our operations through strategic business units that market
products and services to satisfy the financing needs of specific customers,
industries, vendors/manufacturers and markets. Our business segments are
described in greater detail below.
3
We offer commercial lending and leasing in all four of the segments,
providing a wide range of financing and leasing products to small, midsize and
larger companies across a wide variety of industries, including: manufacturing,
retailing, transportation, aerospace, construction, technology, communication
and various service-related industries. The secured lending, leasing and
factoring products of our operations include direct loans and leases, operating
leases, leveraged and single investor leases, secured revolving lines of credit
and term loans, credit protection, accounts receivable collection, import and
export financing, debtor-in-possession and turnaround financing, and acquisition
and expansion financing. Consumer lending is conducted in our Specialty Finance
segment and consists primarily of home equity lending to consumers originated
largely through a network of brokers and correspondents.
Transactions are generated through direct calling efforts with borrowers,
lessees, equipment end-users, vendors, manufacturers and distributors and
through referral sources and other intermediaries. In connection with our
separation from Tyco, we entered into a financial services cooperation agreement
with Tyco under which we may have the opportunity to offer financing and other
services to Tyco and Tyco customers. In addition, our strategic business units
jointly structure certain transactions and refer or cross-sell transactions to
other CIT units to best meet our customers' overall financing needs. We also buy
and sell participations in and syndications of finance receivables and/or lines
of credit. In addition, from time to time in the normal course of business, we
purchase finance receivables in bulk to supplement our originations and sell
select finance receivables and equipment under operating leases for risk and
other balance sheet management purposes, or to improve profitability.
EQUIPMENT FINANCING AND LEASING SEGMENT
Our Equipment Financing and Leasing operations had total financing and
leasing assets of $14.5 billion at June 30, 2002, representing 40.6% of total
financing and leasing assets, and managed assets were $19.2 billion, or 40.2% of
total managed assets. We conduct our Equipment Financing and Leasing operations
through two strategic business units:
Equipment Financing offers secured equipment financing and leasing and
focuses on the broad distribution of its products through manufacturers,
dealers/distributors, intermediaries and direct calling efforts primarily
in manufacturing, construction, transportation, food services/stores and
other industries.
Capital Finance offers secured equipment financing and leasing by directly
marketing customized transactions of commercial aircraft and rail
equipment.
Equipment Financing and Capital Finance personnel have extensive expertise
in managing equipment over its full life cycle, including purchasing new
equipment, maintaining and repairing equipment, estimating residual values and
re-marketing via re-leasing or selling equipment. Equipment Financing's and
Capital Finance's equipment and industry expertise enables them to effectively
manage residual value risk. For example, Capital Finance can repossess
commercial aircraft, if necessary, obtain any required maintenance and repairs
for such aircraft, and recertify such aircraft with appropriate authorities. We
manage the equipment, the residual value, and the risk of equipment remaining
idle for extended periods of time and, where appropriate, we locate alternative
equipment users or purchasers.
The following table sets forth the managed assets of our Equipment Financing
and Leasing segment at June 30, 2002, September 30, 2001 and at December 31 for
each of the years in the four-year period ended December 31, 2000 ($ in
millions).
4
DECEMBER 31,
JUNE 30, SEPTEMBER 30, ---------------------------------------------
EQUIPMENT FINANCING AND LEASING 2002 2001 2000 1999 1998 1997
------------------------------- ---- ---- ---- ---- ---- ----
(SUCCESSOR) (PREDECESSOR)
Finance receivables.......................... $ 9,418.4 $11,555.0 $14,202.7 $12,999.6 $10,592.9 $ 9,804.1
Operating lease equipment, net............... 5,081.0 4,554.1 5,875.3 4,017.1 2,774.1 1,905.6
--------- --------- --------- --------- --------- ---------
Total financing and leasing assets........ 14,499.4 16,109.1 20,078.0 17,016.7 13,367.0 11,709.7
Finance receivables previously securitized
and still managed by us..................... 4,658.2 4,464.8 6,387.2 2,189.4 -- --
--------- --------- --------- --------- --------- ---------
Total managed assets......................... $19,157.6 $20,573.9 $26,465.2 $19,206.1 $13,367.0 $11,709.7
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
During the nine months ended September 30, 2001, certain intersegment
transfers of assets were completed from Equipment Financing to Specialty Finance
to better align marketing and risk management efforts, to further improve
operating efficiencies and to implement a more uniform North American business
strategy.
EQUIPMENT FINANCING
Equipment Financing had total financing and leasing assets of $8.7 billion
at June 30, 2002, representing 24.4% of our total financing and leasing assets,
and managed assets were $13.4 billion, or 28.0% of total managed assets.
Equipment Financing offers secured equipment financing and leasing products,
including loans, leases, wholesale and retail financing for distributors and
manufacturers, loans guaranteed by the U.S. Small Business Administration,
operating leases, sale and leaseback arrangements, portfolio acquisitions,
municipal leases, revolving lines of credit and in-house syndication
capabilities. In connection with our acquisition by Tyco, in fiscal 2002
Equipment Financing ceased origination of, and placed in liquidation status, the
trucking and franchise finance portfolios. The portfolios approximated
$0.9 billion at June 30, 2002.
Equipment Financing is a diversified, middle-market, secured equipment
lender with a global presence and strong North American marketing coverage. At
June 30, 2002, its portfolio included significant financing and leasing assets
to customers in a number of different industries, with manufacturing being the
largest as a percentage of financing and leasing assets, followed by
construction and transportation. The Small Business Lending group is the number
one provider of Small Business Administration loans in the United States, based
on dollar amount of SBA loan authorizations.
Products are originated through direct calling on customers and through
relationships with manufacturers, dealers, distributors and intermediaries that
have leading or significant marketing positions in their respective industries.
This provides Equipment Financing with efficient access to equipment end-users
in many industries across a variety of equipment types.
The following table sets forth the managed assets of Equipment Financing at
June 30, 2002, September 30, 2001 and at December 31 for each of the years in
the four-year period ended December 31, 2000 ($ in millions). Both the increase
in assets during 2000 and the decrease in assets in 2001 resulted primarily from
asset transfers between Specialty Finance and Equipment Financing.
5
DECEMBER 31,
JUNE 30, SEPTEMBER 30, -------------------------------------------
EQUIPMENT FINANCING 2002 2001 2000 1999 1998 1997
------------------- ---- ---- ---- ---- ---- ----
(SUCCESSOR) (PREDECESSOR)
Finance receivables............................ $ 7,888.2 $ 9,782.0 $12,153.7 $10,899.3 $8,497.6 $7,403.4
Operating lease equipment, net................. 818.6 1,281.7 2,280.7 1,066.2 765.1 623.8
--------- --------- --------- --------- -------- --------
Total financing and leasing assets............. 8,706.8 11,063.7 14,434.4 11,965.5 9,262.7 8,027.2
Finance receivables previously securitized and
still managed by us........................... 4,658.2 4,464.8 6,387.2 2,189.4 -- --
--------- --------- --------- --------- -------- --------
Total managed assets........................... $13,365.0 $15,528.5 $20,821.6 $14,154.9 $9,262.7 $8,027.2
--------- --------- --------- --------- -------- --------
--------- --------- --------- --------- -------- --------
CAPITAL FINANCE
Capital Finance had financing and leasing assets of $5.8 billion at
June 30, 2002, which represented 16.2% of our total financing and leasing assets
and 12.2% of managed assets. Capital Finance specializes in providing customized
leasing and secured financing primarily to end-users of commercial aircraft and
railcars, including operating leases, single investor leases, equity portions of
leveraged leases, and sale and leaseback arrangements, as well as loans secured
by equipment. Typical Capital Finance customers are middle-market to
larger-sized companies. New business is generated through direct calling efforts
supplemented with transactions introduced by intermediaries and other referral
sources.
Capital Finance has provided financing to commercial airlines for over 30
years. The Capital Finance aerospace portfolio includes most of the leading U.S.
and foreign commercial airlines, with a fleet of approximately 200 aircraft and
an average age of approximately eight years. Capital Finance has developed
strong direct relationships with most major airlines and major aircraft and
aircraft engine manufacturers. This provides Capital Finance with access to
technical information, which enhances customer service, and provides
opportunities to finance new business. As of June 30, 2002, remaining
commitments to purchase aircraft from both Airbus Industrie and The Boeing
Company totaled 94 units at an approximate value of $4.4 billion, including
options to purchase additional units. Additionally, in some cases CIT has the
flexibility to delay or terminate certain positions. Deliveries of these new
aircraft are scheduled to take place through 2006. As of June 30, 2002, all
delivered aircraft have been placed in service. Remaining deliveries for
calendar years 2002 and 2003 are 5 and 19, respectively, of which all 2002 and
eight 2003 deliveries have customers in place as of June 30, 2002.
Capital Finance has over 25 years of experience in financing the rail
industry, contributing to its knowledge of asset values, industry trends,
product structuring and customer needs. Capital Finance has a dedicated rail
equipment group, maintains relationships with several leading railcar
manufacturers, and has a significant direct calling effort on railroads and rail
shippers in the United States. The Capital Finance rail portfolio includes loans
and/or leases to all of the U.S. and Canadian Class I railroads (which are
railroads with annual revenues of at least $250 million) and numerous shippers.
The operating lease fleet includes primarily covered hopper cars used to ship
grain and agricultural products, plastic pellets and cement; gondola cars for
coal, steel coil and mill service; open hopper cars for coal and aggregates;
center beam flat cars for lumber; and boxcars for paper and auto parts.
The following table sets forth the financing and leasing assets of Capital
Finance at June 30, 2002, September 30, 2001 and at December 31 for each of the
years in the four-year period ended December 31, 2000 ($ in millions).
6
DECEMBER 31,
JUNE 30, SEPTEMBER 30, -----------------------------------------
CAPITAL FINANCE 2002 2001 2000 1999 1998 1997
--------------- ---- ---- ---- ---- ---- ----
(SUCCESSOR) (PREDECESSOR)
Finance receivables............................... $1,530.2 $1,773.0 $2,049.0 $2,100.3 $2,095.3 $2,400.7
Operating lease equipment, net.................... 4,262.4 3,272.4 3,594.6 2,950.9 2,009.0 1,281.8
-------- -------- -------- -------- -------- --------
Total financing and leasing assets................ $5,792.6 $5,045.4 $5,643.6 $5,051.2 $4,104.3 $3,682.5
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
SPECIALTY FINANCE SEGMENT
The Specialty Finance segment is the combination of the former Vendor
Technology Finance and Consumer segments, which were consolidated during the
second quarter of 2001, consistent with how activities are reported internally
to management. Specialty Finance assets include certain small ticket commercial
financing and leasing assets, vendor programs and consumer home equity. At
June 30, 2002, the Specialty Finance financing and leasing assets totaled
$10.0 billion, representing 28.0% of total financing, and leasing assets and
managed assets were $17.3 billion, representing 36.3% of total managed assets.
As part of our review of non-strategic businesses, in fiscal 2001 we sold
approximately $1.4 billion of our manufactured housing loan portfolio and we are
liquidating the remaining assets. We also exited the recreational vehicle
finance receivables origination market and placed the existing portfolio in
liquidation status. In October 2001, we sold approximately $700 million of this
liquidating portfolio. The primary focus of the consumer business is home equity
lending. As part of an ongoing strategy to maximize the value of its origination
network and to improve overall profitability, Specialty Finance sells individual
loans and portfolios of loans to banks, thrifts and other originators of
consumer loans.
Specialty Finance forms relationships with industry-leading equipment
vendors, including manufacturers, dealers and distributors, to deliver
customized asset-based sales and financing solutions in a wide array of vendor
programs. These alliances allow CIT's vendor partners to better utilize core
competencies, reduce capital needs and drive incremental sales volume. As part
of these programs, we offer credit financing to the manufacturer's customers for
the purchase or lease of the manufacturer's products and enhanced sales tools to
manufacturers and vendors, such as asset management services, efficient loan
processing, and real-time credit adjudication. Higher level partnership programs
provide integration with the vendor's business planning process and product
offering systems to improve execution and reduce cycle times. Specialty Finance
has significant vendor programs in information technology and telecommunications
equipment and serves many other industries through its global network.
These vendor alliances feature traditional vendor finance programs, joint
ventures, profit sharing and other transaction structures entered into with
large, sales-oriented corporate vendor partners. In the case of joint ventures,
Specialty Finance and the vendor combine sales and financing activities through
a distinct legal entity that is jointly owned. Generally, these arrangements are
accounted for on an equity basis, with profits and losses distributed according
to the joint venture agreement. Additionally, Specialty Finance generally
purchases finance receivables originated by the joint venture entities.
Specialty Finance also utilizes 'virtual joint ventures,' whereby the assets are
originated on Specialty Finance's balance sheet, while profits and losses are
shared with the vendor. These types of strategic alliances are a key source of
business for Specialty Finance. New vendor alliance business is also generated
through intermediaries and other referral sources, as well as through direct
end-user relationships.
The home equity products include both fixed and variable rate closed-end
loans and variable rate lines of credit. This unit primarily originates,
purchases and services loans secured by first or second liens on detached,
single family residential properties. Customers borrow for the purpose of
consolidating debts,
7
refinancing an existing mortgage, funding home improvements, paying education
expenses and, to a lesser extent, purchasing a home, among other reasons.
Specialty Finance primarily originates loans through brokers and correspondents
with a high proportion of home equity applications processed electronically over
the internet via BrokerEdgeSM using proprietary systems. Through experienced
lending professionals and automation, Specialty Finance provides rapid
turnaround time from application to loan funding, a characteristic considered to
be critical by its broker relationships.
Consumer contract servicing for securitization trusts and other third
parties is provided through a centralized Asset Service Center. Our Asset
Service Center centrally services and collects substantially all of our consumer
receivables, including loans originated or purchased by our Specialty Finance
segment, as well as loans originated or purchased and subsequently securitized
with servicing retained. The servicing portfolio also includes loans owned by
third parties that are serviced by our Specialty Finance segment for a fee on a
'contract' basis. These third-party portfolios totaled $3.1 billion at June 30,
2002.
Commercial assets are serviced via our several centers in the United States,
Canada and internationally. During the nine months ended June 30, 2002,
Specialty Finance closed selected service centers in North America and Europe.
The following table sets forth the managed assets of our Specialty Finance
segment at June 30, 2002, September 30, 2001 and at December 31 for each of the
years in the four-year period ended December 31, 2000 ($ in millions). The
reduction in financing and leasing assets during 2001 reflects the disposition
(or partial disposition) of non-strategic businesses, including the United
Kingdom dealer business and manufactured housing loans.
DECEMBER 31,
JUNE 30, SEPTEMBER 30, -------------------------------------------
SPECIALTY FINANCE 2002 2001 2000 1999 1998 1997
----------------- ---- ---- ---- ---- ---- ----
(SUCCESSOR) (PREDECESSOR)
Finance receivables
Commercial.................................. $ 6,371.6 $ 6,791.6 $ 6,864.5 $ 7,488.9 $ -- $ --
Home Equity................................. 1,241.0 2,760.2 2,451.7 2,215.4 2,244.4 1,992.3
Liquidating Portfolios
Recreational vehicles(1)................. 20.8 742.6 648.0 361.2 744.0 501.9
Manufactured housing..................... 637.5 470.9 1,802.1 1,666.9 1,417.5 1,125.7
Other(2)................................. 191.9 229.7 298.2 462.8 848.4 313.1
--------- --------- --------- --------- -------- --------
850.2 1,443.2 2,748.3 2,490.9 3,009.9 1,940.7
Operating lease equipment, net................. 1,546.9 1,796.1 1,256.5 2,108.8 -- --
--------- --------- --------- --------- -------- --------
Total financing and leasing assets(3).......... 10,009.7 12,791.1 13,321.0 14,304.0 5,254.3 3,933.0
Finance receivables previously securitized and
still managed by us........................... 7,309.7 5,683.1 4,729.1 8,849.9 2,516.9 2,385.6
--------- --------- --------- --------- -------- --------
Total managed assets........................... $17,319.4 $18,474.2 $18,050.1 $23,153.9 $7,771.2 $6,318.6
--------- --------- --------- --------- -------- --------
--------- --------- --------- --------- -------- --------
---------
(1) In October 2001, we sold approximately $700 million of recreational vehicle
finance receivables.
(2) Balances include recreational boat and wholesale loan product lines exited
in 1999.
(3) Prior year balances have been conformed to include our former Vendor
Technology and Consumer segments.
As previously discussed, during the nine months ended September 30, 2001,
certain intersegment transfers of assets were completed from Equipment Financing
to Specialty Finance and are reflected in the table above.
8
COMMERCIAL FINANCE SEGMENT
At June 30, 2002, the financing and leasing assets of our Commercial Finance
segment totaled $8.2 billion, representing 22.9% of total financing and leasing
assets and 17.2% of managed assets. We conduct our Commercial Finance operations
through two strategic business units, both of which focus on accounts receivable
and inventories as the primary source of security for their lending
transactions.
Commercial Services provides traditional secured commercial financing, as
well as factoring and receivable/collection management products to
companies in apparel, textile, furniture, home furnishings and other
industries.
Business Credit provides traditional secured commercial financing to a full
range of borrowers from small to larger-sized companies for working capital
business expansion and turnaround needs.
The following table sets forth the financing and leasing assets of
Commercial Finance at June 30, 2002, September 30, 2001 and at December 31 for
each of the years in the four-year period ended December 31, 2000 ($ in
millions).
DECEMBER 31,
JUNE 30, SEPTEMBER 30, -----------------------------------------
COMMERCIAL FINANCE 2002 2001 2000 1999 1998 1997
------------------ ---- ---- ---- ---- ---- ----
(SUCCESSOR) (PREDECESSOR)
Commercial Services............................... $4,536.4 $5,112.2 $4,277.9 $4,165.1 $2,481.8 $2,113.1
Business Credit................................... 3,644.1 3,544.9 3,415.8 2,837.0 2,514.4 2,137.7
-------- -------- -------- -------- -------- --------
Total financing and leasing assets............. 8,180.5 8,657.1 7,693.7 7,002.1 4,996.2 4,250.8
Total receivables securitized and still managed
by us......................................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total managed assets........................... $8,180.5 $8,657.1 $7,693.7 $7,002.1 $4,996.2 $4,250.8
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
In 1999, Commercial Services acquired two domestic factoring businesses,
which added in excess of $1.5 billion in financing and leasing assets.
Commercial Services
Commercial Services had total financing and leasing assets of $4.5 billion
at June 30, 2002, which represented 12.7% of our total financing and leasing
assets and 9.5% of managed assets. Commercial Services offers a full range of
domestic and international customized credit protection, lending and outsourcing
services that include working capital and term loans, factoring, receivable
management outsourcing, bulk purchases of accounts receivable, import and export
financing and letter of credit programs. Commercial Services generates business
regionally from a variety of sources, including direct calling efforts and
referrals from existing clients and other sources.
Financing is provided to clients through the purchase of accounts receivable
owed to clients by their customers, as well as by guaranteeing amounts due under
letters of credit issued to the clients' suppliers, which are collateralized by
accounts receivable and other assets. The purchase of accounts receivable is
traditionally known as 'factoring' and results in the payment by the client of a
factoring fee which is commensurate with the underlying degree of credit risk
and recourse, and which is generally a percentage of the factored receivables or
sales volume. When Commercial Services 'factors' (i.e., purchases) a customer
invoice from a client, it records the customer receivable as an asset and also
establishes a liability for the funds due to the client ('credit balances of
factoring clients'). Commercial Services also may advance funds to its clients
prior to collection of receivables, typically in an amount up to 80% of eligible
accounts receivable (as defined for that transaction), charging interest on such
advances (in addition to any factoring fees) and satisfying such advances from
receivables collections.
9
Clients use Commercial Services' products and services for various purposes,
including improving cash flow, mitigating or reducing the risk of charge-offs,
increas,1.ing sales and improving management information. Further, with the
TotalSource'sm' product, clients can outsource bookkeeping, collection and
other receivable processing activities. These services are attractive to
industries outside the typical factoring markets, providing growth
opportunities for Commercial Services.
Business Credit
Financing and leasing assets of Business Credit totaled $3.6 billion at
June 30, 2002 and represented 10.2% of our total financing and leasing assets
and 7.7% of managed assets. Business Credit offers revolving and terloans
larger-sized companies. Clients use such loans primarily for working capital,
growth, expansion, acquisitions, refinancings and debtor-in-possession
financing, reorganization and restructurings, and turnaround financings.
Business Credit sells and purchases participation interests in such loans to and
from other lenders,g4..
Through its variable interest rate senior revolving and term loan products,
Business Credit meets its customers' financing needs for working capital,
growth, acquisition and other financing situations that are otherwise not met
through bank or other unsecured financing alternatives. Business Credit
typically structures financings on a fully secured basis, though, from time to
time, it may look to a customer's cash flow to support a portion of the credit
facility. Revolving and term loans are made on a variable interest rate basis
d on published indexes, such as LIBOR or a prime rate of interest.
Business is originated through direct calling efforts and intermediary and
referral sources, as well as through sales and regional offices. Business Credit
has focused on increasing the proportion of direct business origination to
improve its ability to capture or retain refinancing opportunities and to
enhance finance income. Business Credit has developed long-term relationships
with selected finance companies, banks and other lenders and with many
diversified referral sources.
STRUCTURED FINANCE SEGMENT
Structured Finance had financing and leasing assets of $3.0 billion,
comprising 8.5% of our total financing and leasing assets and 6.3% of managed
assets at June 30, 2002. Structured Finance operates internationally through
operations in the United States, Canada, and Europe. Structured Finance provides
specialized investment banking services to the international corporate finance
and institutional finance markets by providing asset-based financing for large
ticket asset acquisitions and project financing and related advisory services to
equipment manufacturers, corporate clients, regional airlines, governments and
public sector agencies. Communications, transportation, and the power and
utilities sectors are among the industries that Structured Finance serves.
Structured Finance also serves as an origination conduit to its lending
partners by seeking out and creating investment opportunities. Structured
Finance has established relationships with insurance companies and institutional
investors and can arrange financing opportunities that meet asset class, yield,
duration and credit quality requirements. Accordingly, Structured Finance has
considerable syndication and fee generation capacity.
Structured Finance continues to arrange transaction financing and
participate in merger and acquisition transactions and has venture capital
equity investments, totaling $362.5 million at June 30, 2002, in emerging growth
enterprises in selected industries, including information technology,
communications, life
10
science and consumer products, as well as investments in private equity funds.
The portfolio composition is approximately 55% direct investments and 45%
venture capital funds. We do not plan to invest in new venture capital funds or
make additional direct investments beyond existing commitments.
The following table sets forth the financing and leasing assets of
Structured Finance at June 30, 2002, September 30, 2001 and December 31, 2000
and 1999 ($ in millions).
DECEMBER 31,
JUNE 30, SEPTEMBER 30, -------------------
STRUCTURED FINANCE 2002 2001 2000 1999
------------------ ---- ---- ---- ----
(SUCCESSOR) (PREDECESSOR)
Finance receivables................................ $2,594.5 $2,777.1 $2,347.3 $1,933.9
Operating lease equipment, net..................... 61.8 52.6 58.8 --
Other -- Equity Investments........................ 362.5 342.2 285.8 137.3
-------- -------- -------- --------
Total financing and leasing assets............. $3,018.8 $3,171.9 $2,691.9 $2,071.2
-------- -------- -------- --------
-------- -------- -------- --------
SECURITIZATION PROGRAM
We fund most of our assets on balance sheet by accessing various sectors of
the capital markets. In an effort to broaden funding sources and to provide an
additional source of liquidity, we have in place an array of securitization
programs to access both the public and private asset-backed securitization
markets. Current products included in these programs include receivables and
leases secured by equipment, consumer loans secured by recreational vehicles and
residential real estate and accounts receivable of factoring clients. During the
nine months ended June 30, 2002, we securitized $6.7 billion of financing and
leasing assets. The balance of finance receivables securitized at June 30, 2002
was $12.0 billion or 25.1% of our total managed assets.
Under a typical asset-backed securitization, we sell a 'pool' of secured
loans or leases to a special-purpose entity, generally a trust. The
special-purpose entity, in turn, typically issues certificates and/or notes that
are collateralized by the pool and entitle the holders thereof to participate in
certain pool cash flows. We retain the servicing of the securitized contracts,
for which we earn a servicing fee. We also participate in certain 'residual'
cash flows (cash flows after payment of principal and interest to certificate
and/or note holders, servicing fees and other credit-related disbursements). At
the date of securitization, we estimate the 'residual' cash flows to be received
over the life of the securitization, record the present value of these cash
flows as a retained interest in the securitization (retained interests can
include bonds issued by the special-purpose entity, cash reserve accounts on
deposit in the special-purpose entity or interest only receivables) and
typically recognize a gain.
In estimating residual cash flows and the value of the retained interests,
we make a variety of financial assumptions, including pool credit losses,
prepayment speeds and discount rates. These assumptions are supported by both
our historical experience and anticipated trends relative to the particular
products securitized. Subsequent to recording the retained interests, we review
them quarterly for impairment based upon estimated fair values. These reviews
are performed on a disaggregated basis. Fair values of retained interests are
estimated utilizing current pool demographics, actual note/certificate
outstandings, current and anticipated credit losses, prepayment speeds and
discount rates. During the nine months ended June 30, 2002, we recorded
securitization gains of $119.8 million on $6.7 billion of financing and leasing
assets securitized. During the same period in 2001, we recorded securitization
gains of $112.7 million on $3.6 billion of financing and leasing assets
securitized. The increased securitization volume in 2002 reflects the increased
use of securitizations during the current period following the
11
disruption to our funding base. Our retained interests had a carrying value at
June 30, 2002 of $1,350.2 million, including interests in equipment securitized
assets of $1,141.5 million and consumer securitized assets of $208.7 million.
Retained interests are subject to credit and prepayment risk. Our interests
relating to commercial securitized assets are generally subject to lower
prepayment risk because of the contractual terms of the underlying receivables.
These assets are subject to the same credit granting and monitoring processes.
COMPETITION
Our markets are highly competitive and are characterized by competitive
factors that vary based upon product and geographic region. Competitors include
captive and independent finance companies, commercial banks and thrift
institutions, industrial banks, leasing companies, manufacturers and vendors
with global reach. Substantial financial services networks with global reach
have been formed by insurance companies and bank holding companies that compete
with us. On a local level, community banks and smaller independent finance and
mortgage companies are a competitive force. Some competitors have substantial
local market positions. Many of our competitors are large companies that have
substantial capital, technological and marketing resources. Some of these
competitors are larger than us and may have access to capital at a lower cost
than us. Competition has been enhanced in recent years by a strong economy and
growing marketplace liquidity, although, during 2001, the economy slowed and
marketplace liquidity tightened. The markets for most of our products are
characterized by a large number of competitors, although there continues to be
consolidation in the industry. However, with respect to some of our products,
competition is more concentrated.
We compete primarily on the basis of pricing, terms and structure. From time
to time, our competitors seek to compete aggressively on the basis of these
factors and we may lose market share to the extent we are unwilling to match
competitor pricing and terms in order to maintain interest margins and/or credit
standards.
Other primary competitive factors include industry experience and client
service and relationships. In addition, demand for our products with respect to
certain industries will be affected by demand for such industry's services and
products and by industry regulations.
REGULATION
Our operations are subject, in certain instances, to supervision and
regulation by state, federal and various foreign governmental authorities and
may be subject to various laws and judicial and administrative decisions
imposing various requirements and restrictions, which, among other things,
(i) regulate credit granting activities, including establishing licensing
requirements, if any, in applicable jurisdictions, (ii) establish maximum
interest rates, finance charges and other charges, (iii) regulate customers'
insurance coverages, (iv) require disclosures to customers, (v) govern secured
transactions, (vi) set collection, foreclosure, repossession and claims handling
procedures and other trade practices, (vii) prohibit discrimination in the
extension of credit and administration of loans, and (viii) regulate the use and
reporting of information related to a borrower's credit experience. In addition
to the foregoing, CIT OnLine Bank, a Utah industrial loan corporation wholly
owned by CIT, is subject to regulation and examination by the Federal Deposit
Insurance Corporation and the Utah Department of Financial Institutions.
12
EMPLOYEES
CIT employed approximately 5,935 people at June 30, 2002, of which
approximately 4,495 were employed in the United States and 1,440 were outside
the United States.
FACILITIES
CIT conducts its operations in the United States, Canada, Europe, Latin
America, Australia and the Asia-Pacific region. At June 30, 2002, CIT occupied
approximately 2.6 million square feet of office space, substantially all of
which was leased.
LEGAL PROCEEDINGS
We are a defendant in various lawsuits arising in the ordinary course of our
business. We aggressively manage our litigation and evaluate appropriate
responses to our lawsuits in light of a number of factors, including the
potential impact of the actions on the conduct of our operations. In the opinion
of management, none of the pending matters is expected to have a material
adverse effect on our financial condition, liquidity or results of operations.
However, there can be no assurance that an adverse decision in one or more of
such lawsuits will not have a material adverse effect.
13
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of CIT
for each of the periods indicated.
NINE MONTHS
ENDED JUNE 30, NINE MONTHS ENDED YEARS ENDED DECEMBER 31,
----------------------- SEPTEMBER 30, -------------------------------------
2002 2001 2001 2000 1999 1998 1997 1996
---- ---- ----------------- ---- ---- ---- ---- ----
(COMBINED) (COMBINED)
Ratios of Earnings to
Fixed Charges (1) 1.29x 1.37x 1.39x 1.45x 1.49x 1.51x 1.49x
We have computed the ratios of earnings to fixed charges in accordance with
requirements of the SEC's Regulation S-K. Earnings consist of income from
continuing operations before income taxes and fixed charges. Fixed charges
consist of interest on indebtedness, minority interest in a subsidiary trust
holding solely debentures of CIT and one-third of rent expense which is deemed
representative of an interest factor.
(1) Earnings were insufficient to cover fixed charges by $5,862.4 million in the
nine months ended June 30, 2002. Earnings for the nine months ended June 30,
2002 included total non-cash, estimated goodwill impairment charges of
$6,511.7 million in accordance with SFAS 142, 'Goodwill and Other Intangible
Assets.' The ratio of earnings to fixed charges includes total fixed charges
of $1,115.7 million and a loss before provision for income taxes of $5,862.4
million resulting in a total loss before provision for income taxes and
fixed charges of ($4,746.7) million.
14
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus and the documents
incorporated by reference are forward-looking statements within the meaning of
the U.S. Private Securities Litigation Reform Act of 1995. All statements
contained herein that are not clearly historical in nature are forward-looking
and the words 'anticipate,' 'believe,' 'expect,' 'estimate' and similar
expressions are generally intended to identify forward-looking statements. Any
forward-looking statements contained herein, in press releases, written
statements or other documents filed with the SEC or in communications and
discussions with investors and analysts in the normal course of business through
meetings, webcasts, phone calls and conference calls, concerning our operations,
economic performance and financial condition are subject to known and unknown
risks, uncertainties and contingencies. Forward-looking statements are included,
for example, in the discussions about:
our liquidity risk management,
our credit risk management,
our asset/liability risk management,
our capital, leverage and credit ratings,
our operational and legal risks,
how we may be affected by legal proceedings, and
our relationship with Tyco following the separation.
All forward-looking statements involve risks and uncertainties, many of
which are beyond our control, which may cause actual results, performance or
achievements to differ materially from anticipated results, performance or
achievements. Also, forward-looking statements are based upon management's
estimates of fair values and of future costs, using currently available
information. Therefore, actual results may differ materially from those
expressed or implied in those statements. Factors that could cause such
differences include, but are not limited to:
risks associated with transactions involving foreign currencies,
continued weakness in the telecommunications industry,
changes in our credit ratings,
risks of economic slowdown, downturn or recession,
industry cycles and trends,
risks inherent in changes in market interest rates,
funding opportunities and borrowing costs,
changes in funding markets, including commercial paper, term debt and the
asset-backed securitization markets,
uncertainties associated with risk management, including credit,
prepayment, asset/liability, interest rate and currency risks,
adequacy of reserves for credit losses,
risks associated with the value and recoverability of leased equipment and
lease residual values,
changes in regulations governing our business and operations or permissible
activities,
15
changes in competitive factors, and
future acquisitions and dispositions of businesses or asset portfolios.
USE OF PROCEEDS
We intend to use the net proceeds from the sale of any debt securities
offered under this prospectus to provide additional working funds for us and our
subsidiaries. Generally, we use the proceeds of our short-term borrowings
primarily to originate and purchase receivables in the ordinary course of our
business. We have not yet determined the amounts that we may use in connection
with our business or that we may furnish to our subsidiaries. From time to time,
we may also use the proceeds to finance the bulk purchase of receivables and/or
the acquisition of other finance-related businesses.
16
DESCRIPTION OF DEBT SECURITIES
The debt securities offered by this prospectus will be unsecured obligations
of CIT and will be either senior debt or senior subordinated debt. Senior debt
will be issued under a senior debt indenture. Senior subordinated debt will be
issued under a senior subordinated debt indenture. The senior debt indenture and
the senior subordinated debt indenture are sometimes referred to in this
prospectus individually as an 'indenture' and collectively as the 'indentures.'
We have filed forms of the global senior indenture and subordinated indenture as
exhibits to the registration statement on Form S-3 (No. 333-98743) under the
Securities Act of 1933, of which this prospectus is a part. The terms of the
indentures are also governed by the applicable provisions of the Trust Indenture
Act of 1939.
The following briefly summarizes the material provisions of the indentures
and the debt securities, other than pricing and related terms disclosed in the
accompanying prospectus supplement. You should read the more detailed provisions
of the applicable indenture, including the defined terms, for provisions that
may be important to you. You should also read the particular terms of a series
of debt securities, which will be described in more detail in the applicable
prospectus supplement. Copies of the indentures may be obtained from CIT or the
applicable trustee. So that you may easily locate the more detailed provisions,
the numbers in parentheses below refer to sections in the applicable indenture
or, if no indenture is specified, to sections in each of the indentures.
Wherever particular sections or defined terms of the applicable indenture are
referred to, these sections or defined terms are incorporated into this
prospectus by reference and the statements in this prospectus are qualified by
that reference.
GENERAL
The indentures provide that any debt securities that we issue will be issued
in fully registered form. We may issue the debt securities in one or more
separate series of senior or senior subordinated securities. Debt securities in
a particular series may have different maturities or different purchase prices.
(See Section 2.01 of the indentures).
The debt securities that we issue will constitute either 'superior
indebtedness' or 'senior subordinated indebtedness,' as those terms are defined
below. From time to time, we may issue senior debt securities or 'senior
securities,' in one or more separate series of debt securities. We will issue
each series of senior securities under separate indentures, each substantially
in the form of a global senior indenture filed with the SEC. We will enter into
each senior indenture with a banking institution organized under the laws of the
United States or one of the states thereof. We refer to this banking institution
as a 'senior trustee.'
From time to time, we may also issue senior subordinated debt securities as
one or more separate series of debt securities. We will issue each series of
senior subordinated securities under one or more separate indentures, each
substantially in the form of a senior subordinated global indenture filed with
the SEC. We will enter into each senior subordinated indenture with a banking
institution organized under the laws of the United States or one of the states
thereof. We refer to this banking institution as 'senior subordinated trustee.'
Limitations on Indebtedness. The terms of the senior indentures do not limit
the amount of debt securities or other unsecured superior indebtedness that we
may issue. The terms of the senior indentures also do not limit the amount of
subordinated debt, secured or unsecured, that we may issue. The terms of some of
the senior subordinated indentures may limit the amount of debt securities or
other unsecured senior subordinated indebtedness that we may issue or limit the
amount of junior subordinated
17
indebtedness that we may issue. For a description of these limitations, see
'Description of Debt Securities -- Restrictive Provisions and Covenants' on
pages 17-18. At June 30, 2002, there was no senior subordinated indebtedness
issued and outstanding. At June 30, 2002, under the most restrictive provisions
of the senior subordinated indentures, we could issue up to approximately $4.5
billion of additional senior subordinated indebtedness.
Original Issue Discount. Debt securities bearing no interest or a below
market interest rate when issued are known as original issue discount
securities. We will offer any original issue discount securities which we issue
at a discount, which may be substantial, below their stated principal amount.
You should refer to the prospectus supplement for a description of federal
income tax consequences and other special considerations applicable to original
issue discount securities.
Particular Terms of Offered Debt Securities. You should refer to the
prospectus supplement for a description of the particular terms of any debt
securities that we offer for sale. The following are some of the terms of these
debt securities that we will describe in the prospectus supplement:
title, designation, total principal amount and authorized denominations;
percentage of principal amount at which debt securities will be issued;
maturity date or dates;
interest rate or rates (which may be fixed or variable) per annum, the
method of determining the interest rate or rates and any original issue
discount;
payment dates for interest and principal and the provisions for accrual of
interest;
provisions for any sinking, purchase or other comparable fund;
any redemption terms;
designation of the place where registered holders of debt securities may be
paid or may transfer or redeem debt securities;
designation of any foreign currency, including composite currencies, in
which the debt securities may be issued or paid and any terms under which a
holder of debt securities may elect to be paid in a different currency than
the currency of the debt securities;
any index that may be used to determine the amounts of principal, interest
or any other payment due on the debt securities; and
designation of the debt securities as senior securities or senior
subordinated securities. (See Section 2.01 of the indentures).
Payment. Unless otherwise specified in the prospectus supplement, we will
make all payments due on debt securities, less any applicable withholding taxes,
at the office of CIT or its agent maintained for this purpose in New York, New
York. However, at our option, we may pay interest, less any applicable
withholding taxes, by mailing a check to the address of the person entitled to
the interest as their name and address appear on our register. (See
Section 2.04 of the indentures).
Transfer of Debt Securities. A registered holder of debt securities or a
properly authorized attorney of the holder, may transfer these debt securities
at our office or our agent's office. The prospectus supplement will describe the
location of these offices. We will not charge the holder a fee for any transfer
or exchange of debt securities, but we may require the holder to pay a sum
sufficient to cover any tax or other governmental charge in connection with a
transfer or exchange. (See Section 2.06 of the indentures).
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Certain Defined Terms. 'Indebtedness' in the definition of the terms
'superior indebtedness,' 'senior subordinated indebtedness,' and 'junior
subordinated indebtedness' means all obligations which in accordance with
generally accepted accounting principles should be classified as liabilities on
a balance sheet and in any event includes all debt and other similar monetary
obligations, whether direct or guaranteed.
'Superior indebtedness' means all of our indebtedness that is not by its
terms subordinate or junior to any of our other indebtedness. The senior
securities will constitute superior indebtedness.
'Senior subordinated indebtedness' means all of our indebtedness that is
subordinate only to superior indebtedness. The senior subordinated securities
will constitute senior subordinated indebtedness.
'Junior subordinated indebtedness' means all indebtedness of CIT that is
subordinate to both superior indebtedness and senior subordinated indebtedness.
SENIOR SECURITIES
The senior securities will be direct, unsecured obligations of CIT. Senior
securities will constitute superior indebtedness issued with equal priority to
the other superior indebtedness. At June 30, 2002, CIT Group Inc.'s consolidated
unaudited balance sheet reflected approximately $24.1 billion of outstanding
superior indebtedness.
The senior securities will be senior to all senior subordinated
indebtedness, including the senior subordinated securities. At June 30, 2002,
CIT Group Inc.'s consolidated balance sheet reflected no outstanding senior
subordinated indebtedness and no outstanding junior subordinated indebtedness.
SENIOR SUBORDINATED SECURITIES
The senior subordinated securities will be direct, unsecured obligations of
CIT. CIT will pay principal, premium, if any and interest on the senior
subordinated securities only after the prior payment in full of all superior
indebtedness of CIT, including the senior securities.
In the event of any insolvency, bankruptcy or similar proceedings, the
holders of superior indebtedness will be paid in full before any payment is made
on the senior subordinated securities. An event of default under or acceleration
of superior indebtedness does not in itself trigger the payment subordination
provisions applicable to senior subordinated securities. However, if the senior
subordinated securities are declared due and payable before maturity due to a
default, the holders of the senior subordinated securities will be entitled to
payment only after superior indebtedness is paid in full.
Due to these subordination provisions, if we become insolvent, the holders
of superior indebtedness may recover a higher percentage of their investment
than the holders of the senior subordinated securities. We intend that any
senior subordinated securities will be in all respects equal in right of payment
with the other senior subordinated indebtedness, including CIT's outstanding
senior subordinated securities. We also intend that all senior subordinated
securities will be superior in right of payment to all junior subordinated
indebtedness and to all outstanding capital stock.
RESTRICTIVE PROVISIONS AND COVENANTS
Negative Pledge. Generally, the indentures do not limit the amount of other
securities that we or our subsidiaries may issue. But each indenture contains a
provision, the 'Negative Pledge,' that we will not pledge or otherwise subject
to any lien any of our property or assets to secure indebtedness for money
19
borrowed, incurred, issued, assumed or guaranteed by us, subject to certain
exceptions. (See Section 6.04 of the indentures).
Under the terms of the Negative Pledge, we are permitted to create the
following liens:
liens in favor of any of our subsidiaries;
purchase money liens;
liens existing at the time of any acquisition that we may make;
liens in favor of the United States, any state or governmental agency or
department to secure obligations under contracts or statutes;
liens securing the performance of letters of credit, bids, tenders, sales
contracts, purchase agreements, repurchase agreements, reverse repurchase
agreements, bankers' acceptances, leases, surety and performance bonds and
other similar obligations incurred in the ordinary course of business;
liens upon any real property acquired or constructed by us primarily for
use in the conduct of our business;
arrangements providing for our leasing of assets, which we have sold or
transferred with the intention that we will lease back these assets, if the
lease obligations would not be included as liabilities on our consolidated
balance sheet;
liens to secure non-recourse debt in connection with our leveraged or
single-investor or other lease transactions;
consensual liens created in our ordinary course of business that secure
indebtedness that would not be included in total liabilities as shown on
our consolidated balance sheet;
liens created by us in connection with any transaction that we intend to be
a sale of our property or assets;
liens on property or assets financed through tax-exempt municipal
obligations;
liens arising out of any extension, renewal or replacement, in whole or in
part, of any financing permitted under the Negative Pledge, so long as the
lien extends only to the property or assets, with improvements, that
originally secured the lien; and
liens that secure certain other indebtedness which, in an aggregate
principal amount then outstanding, does not exceed 10% of our consolidated
net worth.
(See Section 6.04 of the indentures for the provisions of the Negative Pledge).
In addition, in the senior subordinated indentures, we have agreed not to
permit:
the aggregate amount of senior subordinated indebtedness outstanding at any
time to exceed 100% of the aggregate amount of the par value of our capital
stock plus our consolidated surplus (including retained earnings); or
the aggregate amount of senior subordinated indebtedness and junior
subordinated indebtedness outstanding at any time to exceed 150% of the
aggregate amount of the par value of the capital stock plus our
consolidated surplus (including retained earnings). Under the more
restrictive of
20
these tests, as of June 30, 2002, we could issue up to approximately $6.5
billion of additional senior subordinated indebtedness.
(See senior subordinated indenture Section 6.05).
Restrictions on Mergers and Asset Sales. Subject to the provisions of the
Negative Pledge, the indentures will not prevent us from consolidating or
merging with any other corporation or selling our assets as or substantially as,
an entirety. However, if we are not the surviving corporation in a merger, the
surviving corporation must expressly assume our obligations under the
indentures. Similarly, if we were to sell our assets as or substantially as, an
entirety to another party, the purchaser must also assume our obligations under
the indentures. (See Section 15.01 of the senior indenture, Section 16.01 of the
senior subordinated indenture).
The holders of at least a majority in principal amount of the outstanding
debt securities of any series may waive compliance with the restrictions of the
Negative Pledge. This waiver of compliance will bind all of the holders of that
series of debt securities. (See Section 6.06 of the senior indenture,
Section 6.07 of the senior subordinated indenture).
Other than these restrictions, the indentures contain no additional
provisions limiting our ability to enter into a highly leveraged transaction.
MODIFICATION OF INDENTURE
Each indenture contains provisions permitting us and the trustee to amend,
modify or supplement the indenture or any supplemental indenture as to any
series of debt securities. Generally, these changes require the consent of the
holders of at least 66 2/3% of the outstanding principal amount of each series
of debt securities affected by the change.
Unanimous consent of the holders of a series of debt securities is required
for any of the following changes:
extending the maturity of that series of debt security, reducing the rate,
extending the time of payment of interest or reducing any other payment due
under that series of debt security; or
reducing the percentage of holders required to consent to any amendment or
modification for purposes of that series of debt security.
The rights, duties or immunities of the trustee cannot be modified without
the consent of the trustee.
(See Section 14.02 of the indentures).
COMPUTATIONS FOR OUTSTANDING DEBT SECURITIES
In computing whether the holders of the requisite principal amount of
outstanding debt securities have taken action under an Indenture:
for an original issue discount security, we will use the amount of the
principal that would be due and payable as of that date, as if the maturity
of the debt had been accelerated due to a default; or
for a debt security denominated in a foreign currency or currencies, we
will use the U.S. dollar equivalent of the outstanding principal amount as
of that date, using the exchange rate in effect on the date of original
issuance of the debt security.
(See Section 1.02 of the indentures).
21
EVENTS OF DEFAULT
Each indenture defines an 'event of default' with respect to any series of
debt securities. An event of default under an indenture is any one of the
following events that occurs with respect to a series of debt securities:
nonpayment for thirty days of any interest when due;
nonpayment of any principal or premium, if any, when due;
nonpayment of any sinking fund installment when due;
failure, after thirty days' appropriate notice, to perform any other
covenant in the indenture (other than a covenant included in the indenture
solely for the benefit of another series of debt securities);
certain events in bankruptcy, insolvency or reorganization;
nonpayment of interest on our indebtedness, including guaranteed
indebtedness (other than indebtedness that is subordinate) or nonpayment of
any principal on any of our indebtedness, in an aggregate amount exceeding
$25 million, as a result of which such indebtedness shall have been
accelerated and such acceleration shall not have been annulled or rescinded
within thirty days after written notice thereof; or
any other event of default included in any indenture or supplemental
indenture.
(See Section 7.01 of the indentures).
The trustee may withhold notice of any default (except in the payment of
principal of, premium, if any or interest, if any, on any series of debt
securities) if the trustee considers that withholding notice is in the interests
of the holders of that series of debt securities. (See Section 11.03 of the
indentures).
Generally, each indenture provides that upon an event of default, the
trustee or the holders of not less than 25% in principal amount of any series of
debt securities then outstanding may declare the principal of all debt
securities of that series to be due and payable. (See Section 7.02 of the
indentures).
You should refer to the prospectus supplement for any original issue
discount securities for disclosure of the particular provisions relating to
acceleration of the maturity of indebtedness upon the occurrence of an event of
default.
Within 120 days after the close of each fiscal year, we are required to file
with each trustee a statement, signed by specified officers, stating whether or
not the specified officers have knowledge of any default and, if so, specifying
each default, the nature of the default and what action, if any, has been taken
to cure the default. (See Section 6.05 of the senior indenture, Section 6.06 of
the senior subordinated indenture).
Except in cases of default and acceleration, the trustee is not under any
obligation to exercise any of its rights or powers under an indenture at the
request of holders of debt securities, unless these holders offer the trustee a
reasonable indemnity. (See Section 11.01 of the indentures). As long as the
trustee has this indemnity, the holders of a majority in principal amount of any
series of debt securities outstanding may direct the time, method and place of
conducting any proceeding for any remedy available to the trustee under the
indenture or of exercising any trust or power conferred upon the trustee. (See
Section 7.08 of the indentures).
22
DEFEASANCE OF THE INDENTURE AND DEBT SECURITIES
We may, at any time, satisfy our obligations with respect to payments on any
series of debt securities by irrevocably depositing in trust with the trustee
cash or Government Obligations, as defined in the indenture or a combination
thereof sufficient to make payments on the debt securities when due. If we make
this deposit in a sufficient amount, properly verified, then we would discharge
all of our obligations with respect to that series of debt securities and the
indenture insofar as it relates to that series of debt securities, except as
otherwise provided in the indenture. In the event of this defeasance, holders of
that series of debt securities would be able to look only to the trust fund for
payment on that series of debt securities until the date of maturity or
redemption. Our ability to defease debt securities of any series using this
trust fund is subject to certain tax, legal and stock exchange requirements.
(See Sections 12.01, 12.02 and 12.03 of the indentures).
INFORMATION CONCERNING THE TRUSTEES
We may periodically borrow funds from any of the trustees. We and our
subsidiaries may maintain deposit accounts and conduct other banking
transactions with any of the trustees. A trustee under a senior indenture or a
senior subordinated indenture may act as trustee under any of CIT's other
indentures.
PLAN OF DISTRIBUTION
We may sell the debt securities being offered hereby:
directly to purchasers;
through agents;
to dealers; or
through an underwriter or a group of underwriters.
We may directly solicit offers to purchase debt securities. We may also
solicit offers through our agents. Unless otherwise indicated in the prospectus
supplement, any agent will be acting on a best efforts basis for the period of
its appointment (ordinarily five business days or less). Under our agreements
with agents, we may indemnify agents against certain civil liabilities,
including liabilities under the Securities Act of 1933.
We may also sell debt securities through a dealer as principal. The dealer
may then resell the debt securities to the public at varying prices to be
determined by the dealer at the time of resale. Under our agreements with
dealers, we may indemnify dealers against certain civil liabilities, including
liabilities under the Securities Act.
We may also use one or more underwriters to sell debt securities. Under our
agreements with underwriters, we may indemnify underwriters against certain
liabilities, including liabilities under the Securities Act. The names of the
underwriters and the terms of the debt securities will be set forth in the
prospectus supplement. When reselling debt securities to the public, the
underwriters will deliver the prospectus supplement and this prospectus to
purchasers of debt securities, as required by applicable law.
The underwriters, dealers, and agents may be deemed to be underwriters under
the Securities Act. Any discounts, commissions, or concessions that they receive
from us or any profit they make on the resale of debt securities may be deemed
to be underwriting discounts and commissions under the Securities Act. We will
disclose in the prospectus supplement any person who may be deemed to be an
23
underwriter and any compensation that we have paid to any underwriter. We may
have various other commercial relationships with our underwriters, dealers, and
agents.
If disclosed in the prospectus supplement, we may authorize underwriters and
agents to solicit offers by certain institutions to purchase offered debt
securities from us at the public offering price set forth in the prospectus
supplement pursuant to contracts providing for payment and delivery on the date
stated in the prospectus supplement. Each contract will be for an amount not
less than, and unless we otherwise agree the aggregate principal amount of
offered debt securities sold pursuant to contracts will be not less nor more
than, the amounts stated in the prospectus supplement. We may authorize
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions, all
subject to our approval. Contracts will not be subject to any conditions except
that any purchase of debt securities by an institution pursuant to a contract
must be permitted under applicable laws. We will disclose in the prospectus
supplement any commission that we pay to underwriters and agents who sell debt
securities pursuant to contracts. Underwriters and agents will have no
responsibility in respect of the delivery or performance of contracts.
The place and time of delivery for the debt securities will be set forth in
the prospectus supplement.
EXPERTS
The consolidated balance sheet of CIT Group Inc. as of September 30, 2001,
and the related consolidated statements of income, changes in shareholder's
equity and cash flows for the periods from January 1, 2001 to June 1, 2001 and
June 2, 2001 to September 30, 2001, incorporated by reference herein and in the
registration statement of which this prospectus forms a part, have been so
incorporated by reference in reliance on the reports of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated balance sheet as of December 31, 2000, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows of The CIT Group, Inc. and subsidiaries for each of the years in the
two-year period ended December 31, 2000, have been incorporated by reference
herein and in the registration statement of which this prospectus forms a part,
in reliance on the report of KPMG LLP, independent accountants, also
incorporated by reference herein, and upon the authority of KPMG LLP as experts
in accounting and auditing.
The stand-alone balance sheet of CIT Group Inc. (Del) as of September 30,
2001, incorporated by reference herein and in the registration statement of
which this prospectus forms a part, has been so incorporated by reference in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The consolidated balance sheet of Tyco Capital Holding, Inc. as of
September 30, 2001, and the related consolidated statements of income, changes
in shareholder's equity and cash flows for the period from October 13, 2000
(date of inception) to September 30, 2001, incorporated by reference herein and
in the registration statement of which this prospectus forms a part, have been
so incorporated by reference in reliance on the report of PricewaterhouseCoopers
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
24
LEGAL OPINIONS
The validity of the debt securities offered will be passed upon for us by
Schulte Roth & Zabel LLP.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-3 to register
the debt securities being offered in this prospectus. This prospectus, which
forms part of the registration statement, does not contain all of the
information included in the registration statement. For further information
about us and the securities offered in this prospectus, you should refer to the
registration statement and its exhibits. You may read and copy any document that
CIT files at the SEC's Public Reference Rooms at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can also request copies of the documents, upon
payment of a duplicating fee, by writing the Public Reference Section of the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. These SEC filings are also available to
the public from the SEC's web site at http://www.sec.gov. Certain of our
securities are listed on the New York Stock Exchange and reports and other
information concerning us can also be inspected at the offices of the New York
Stock Exchange at 20 Broad Street, New York, New York 10005. You can also obtain
more information about us by visiting our web site at http://www.cit.com.
The SEC allows us to 'incorporate by reference' the information we file with
the SEC and information our predecessors filed in the past with the SEC, which
means we can disclose important information to you by referring you to those
documents. The information included in the following documents is incorporated
by reference and is considered to be a part of this prospectus. The most recent
information that we file with the SEC automatically updates and supersedes older
information.
We are incorporating by reference into this prospectus the following documents
previously filed with the SEC:
1. CIT Group Inc. (Nevada)'s Transition Report on Form 10-K for the
transition period ended September 30, 2001;
2. CIT Group Inc. (Nevada)'s Quarterly Report on Form 10-Q for the quarter
ended December 31, 2001;
3. CIT Group Inc. (Nevada)'s Quarterly Report on Form 10-Q and 10-Q/A for
the quarter ended March 31, 2002;
4. CIT Group Inc. (Nevada)'s Current Reports on Form 8-K filed January 17,
2002, January 24, 2002, February 7, 2002, February 22, 2002 and April 26,
2002;
5. Our Quarterly Report on Form 10-Q and 10-Q/A for the quarter ended June
30, 2002; and
6. Our Current Reports on Form 8-K filed July 10, 2002, July 15, 2002 and
July 25, 2002.
Until we have sold all of the debt securities that we are offering for sale
under this prospectus, we also incorporate by reference all documents that we
will file in the future pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act.
We will provide without charge to each person who receives a prospectus,
including any beneficial owner, a copy of the information that has been
incorporated by reference in this prospectus. If you would like to obtain this
information from us, please direct your request, either in writing or by
telephone, to Glenn Votek, Executive Vice President and Treasurer, CIT Group
Inc., 1 CIT Drive, Livingston, New Jersey 07039, telephone (973) 740-5000.
25
You should rely only on the information provided in this prospectus and the
prospectus supplement, as well as the information incorporated by reference. CIT
has not authorized anyone to provide you with different information. CIT is not
making an offer of these securities in any state where the offer is not
permitted. Youg sould not assume that the information in this prospectus, the
prospectus supplement or any documents incorporated by reference is accurate as
of any date other than the date on the front of the applicable document.
26
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CIT Group Inc.
$2,000,000,000
CIT InterNotes'r'
Prospectus Supplement
November 1, 2002
[CIT LOGO]
==================================
CIT InterNotes'r'
STATEMENT OF DIFFERENCES
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The registered trademark symbol shall be expressed as.................. 'r'
The service mark symbol shall be expressed as.......................... 'sm'