Exhibit 99.5
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
($ in millions -- except share data)
March 31, December 31,
2005 2004
--------- ------------
ASSETS
Financing and leasing assets:
Finance receivables .............................................. $36,859.6 $35,048.2
Education lending receivables pledged ............................ 4,322.9 --
Reserve for credit losses ........................................ (620.4) (617.2)
--------- ---------
Net finance receivables .......................................... 40,562.1 34,431.0
Operating lease equipment, net ................................... 8,313.1 8,290.9
Finance receivables held for sale ................................ 1,481.3 1,640.8
Cash and cash equivalents, including $234.4 and $0.0 restricted ..... 1,638.1 2,210.2
Retained interest in securitizations and other investments .......... 1,123.2 1,228.2
Goodwill and intangible assets, net ................................. 906.4 596.5
Other assets ........................................................ 2,756.8 2,713.7
--------- ---------
Total Assets ........................................................ $56,781.0 $51,111.3
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Commercial paper ................................................. $ 3,963.0 $ 4,210.9
Variable-rate senior unsecured notes ............................. 11,473.1 11,545.0
Fixed-rate senior unsecured notes ................................ 22,197.0 21,715.1
Non-recourse, secured borrowings -- education lending ............ 4,638.9 --
Preferred capital securities ..................................... 253.3 253.8
--------- ---------
Total debt .......................................................... 42,525.3 37,724.8
Credit balances of factoring clients ................................ 4,269.8 3,847.3
Accrued liabilities and payables .................................... 3,619.1 3,443.7
--------- ---------
Total Liabilities ................................................... 50,414.2 45,015.8
--------- ---------
Commitments and Contingencies (Note10)
Minority interest ................................................... 48.8 40.4
Preferred capital securities
Stockholders' Equity:
Preferred stock: $0.01 par value, 100,000,000 authorized;
none issued .................................................... -- --
Common stock: $0.01 par value, 600,000,000 authorized;
Issued: 212,119,700 and 212,112,203 ............................ 2.1 2.1
Outstanding: 210,771,309 and 210,440,170
Paid-in capital, net of deferred compensation of $68.6
and $39.3 ...................................................... 10,654.5 10,674.3
Accumulated deficit .............................................. (4,316.5) (4,499.1)
Accumulated other comprehensive income / (loss) .................. 31.2 (58.4)
Less: treasury stock, 1,348,391 and 1,672,033 shares, at cost ....... (53.3) (63.8)
--------- ---------
Total Stockholders' Equity .......................................... 6,318.0 6,055.1
--------- ---------
Total Liabilities and Stockholders' Equity .......................... $56,781.0 $51,111.3
========= =========
See Notes to Consolidated Financial Statements
1
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
($ in millions -- except per share data)
Quarters Ended
March 31,
----------------------
2005 2004
--------- ---------
Finance income ........................................ $ 1,022.0 $ 896.9
Interest expense ...................................... 394.2 298.0
--------- ---------
Net finance income .................................... 627.8 598.9
Depreciation on operating lease equipment ............. 237.6 235.8
--------- ---------
Net finance margin .................................... 390.2 363.1
Provision for credit losses ........................... 45.3 85.6
--------- ---------
Net finance margin after provision for credit losses .. 344.9 277.5
Other revenue ......................................... 239.4 230.4
Net gain on venture capital investments ............... 10.8 0.7
--------- ---------
Operating margin ...................................... 595.1 508.6
--------- ---------
Salaries and general operating expenses ............... 261.0 240.0
Gain on redemption of debt ............................ -- 41.8
--------- ---------
Income before provision for income taxes .............. 334.1 310.4
Provision for income taxes ............................ (122.8) (121.1)
Minority interest, after tax .......................... (0.9) --
--------- ---------
Net income ............................................ $ 210.4 $ 189.3
========= =========
Earnings per share
Basic earnings per share .............................. $ 1.00 $ 0.89
Diluted earnings per share ............................ $ 0.98 $ 0.88
Number of shares -- basic (thousands) ................. 210,656 211,839
Number of shares -- diluted (thousands) ............... 215,090 215,809
Dividends per common share ............................ $ 0.13 $ 0.13
See Notes to Consolidated Financial Statements
2
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
($ in millions)
Accumulated
Other Total
Common Paid-in Treasury Accumulated Comprehensive Stockholders
Stock Capital Stock Deficit Income/(Loss) Equity
------ --------- -------- ----------- ------------- ------------
December 31, 2004 ................... $2.1 $10,674.3 $(63.8) $(4,499.1) $(58.4) $6,055.1
Net income .......................... 210.4 210.4
Foreign currency translation
adjustments ...................... 42.6 42.6
Change in fair values of
derivatives qualifying as cash
flow hedges ...................... 47.4 47.4
Unrealized loss on equity and
securitization investments, net .. (0.8) (0.8)
Minimum pension liability
adjustment ....................... 0.4 0.4
--------
Total comprehensive income .......... 300.0
--------
Cash dividends ...................... (27.8) (27.8)
Restricted common stock grants
amortization ..................... 9.7 9.7
Treasury stock purchased, at cost ... (59.3) (59.3)
Exercise of stock option awards ..... (29.3) 68.8 39.5
Employee stock purchase plan
participation .................... (0.2) 1.0 0.8
---- --------- ------ --------- ------ --------
March 31, 2005 ...................... $2.1 $10,654.5 $(53.3) $(4,316.5) $ 31.2 $6,318.0
==== ========= ====== ========= ====== ========
See Notes to Consolidated Financial Statements.
3
CIT GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in millions)
Quarters Ended
March 31,
------------------------
2005 2004
--------- ---------
Cash Flows From Operations
Net income .................................................... $ 210.4 $ 189.3
Adjustments to reconcile net income to net cash flows
from operations:
Depreciation and amortization .............................. 248.3 248.2
Provision for deferred federal income taxes ................ 90.0 95.4
Provision for credit losses ................................ 45.3 85.6
Gains on equipment, receivable and investment sales ........ (66.6) (62.5)
Gain on debt redemption .................................... -- (41.8)
Net proceeds from finance receivables held for sale ........ 372.5 273.4
(Increase) decrease in other assets ........................ (48.5) 303.1
Increase (decrease) in accrued liabilities and payables .... 131.1 (346.6)
Other ...................................................... (46.5) (26.0)
--------- ---------
Net cash flows provided by operations ......................... 936.0 718.1
--------- ---------
Cash Flows From Investing Activities
Loans extended ................................................ (12,603.0) (11,743.3)
Collections on loans .......................................... 11,665.3 10,532.9
Proceeds from asset and receivable sales ...................... 900.3 798.9
Purchase of finance receivable portfolios ..................... (902.9) (595.1)
Net increase in short-term factoring receivables .............. (319.6) (400.8)
Purchases of assets to be leased .............................. (326.2) (268.7)
Acquisitions, net of cash acquired ............................ (152.6) --
Intangible assets acquired .................................... (29.0) --
Other ......................................................... 95.5 (1.1)
--------- ---------
Net cash flows (used for) investing activities ................ (1,672.2) (1,677.2)
--------- ---------
Cash Flows From Financing Activities
Proceeds from the issuance of variable and fixed-rate notes ... (3,067.0) (3,011.5)
Repayments of variable and fixed-rate notes ................... 3,675.4 2,804.2
Net (decrease) increase in commercial paper ................... (247.9) 646.3
Net loans extended -- pledged in conjunction with
secured borrowings ......................................... (167.9) --
Net repayments of non-recourse leveraged lease debt ........... 8.6 (61.1)
Cash dividends paid ........................................... (27.8) (28.0)
Other ......................................................... (9.3) (8.0)
--------- ---------
Net cash flows provided by financing activities ............... 164.1 341.9
--------- ---------
Net (decrease) in cash and cash equivalents ................... (572.1) (617.2)
Cash and cash equivalents, beginning of period ................ 2,210.2 1,973.7
--------- ---------
Cash and cash equivalents, end of period ...................... $ 1,638.1 $ 1,356.5
========= =========
Supplementary Cash Flow Disclosure
Interest paid ................................................. $ 367.9 $ 287.5
Federal, foreign, state and local income taxes paid, net ...... $ 21.7 $ 24.7
See Notes to Consolidated Financial Statements.
4
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
Note 1 -- Summary of Significant Accounting Policies
CIT Group Inc., a Delaware corporation ("we," "CIT" or the "Company"), is
a global commercial and consumer finance company that was founded in 1908. CIT
provides financing and leasing capital for consumers and companies in a wide
variety of industries, offering vendor, equipment, commercial, factoring, home
lending, educational lending and structured financing products. CIT operates
primarily in North America, with locations in Europe, Latin America, Australia
and the Asia-Pacific region.
These financial statements, which have been prepared in accordance with
the instructions to Form 10-Q, do not include all of the information and note
disclosures required by accounting principles generally accepted in the United
States ("GAAP") and should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 2004. Financial statements
in this Form 10-Q have not been audited by the independent registered public
accounting firm in accordance with the standards of the Public Company
Accounting Oversight Board (U.S.), but in the opinion of management include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of CIT's financial position and results of operations. Certain
prior period amounts have been reclassified to conform to the current
presentation.
Education Lending Acquisition
In February 2005, CIT acquired Education Lending Group, Inc. (EDLG), a
specialty finance company principally engaged in providing education loans
(primarily U.S. government guaranteed), products and services to students,
parents, schools and alumni associations. The shareholders of EDLG received
$19.05 per share or approximately $383 million in cash. The acquisition was
accounted for under the purchase method, with the acquired assets and
liabilities recorded at their estimated fair values as of the February 17, 2005
acquisition date. The assets acquired included approximately $4.4 billion of
finance receivables and $287 million of goodwill and intangible assets. The net
income impact of the EDLG acquisition for the period of CIT's ownership during
the quarter ended March 31, 2005 was immaterial.
This business is largely funded with "Education Loan Backed Notes," which
are accounted for under SFAS No. 140 "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." As EDLG retains certain
call features with respect to these borrowings, the transactions do not meet the
SFAS 140 requirements for sales treatment and are therefore recorded as secured
borrowings and are reflected in the Consolidated Balance Sheet as "Education
lending receivables pledged" and "Non-recourse, secured borrowings - education
lending." Certain cash balances, included in cash and cash equivalents, are
restricted in conjunction with these borrowings.
Stock-Based Compensation
CIT has elected to apply Accounting Principles Board Opinion 25 ("APB 25")
rather than the optional provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition
and Disclosure" in accounting for its stock-based compensation plans. Under APB
25, CIT does not recognize compensation expense on the issuance of its stock
options because the option terms are fixed and the exercise price equals the
market price of the underlying stock on the grant date. The following table
presents the pro forma information required by SFAS 123 as if CIT had accounted
for stock options granted under the fair value method of SFAS 123, as amended ($
in millions, except per share data):
Quarters Ended
March 31,
------------------
2005 2004
------ ------
Net income as reported .................................. $210.4 $189.3
Stock-based compensation expense --
fair value method, after tax .......................... (5.1) (5.1)
------ ------
Pro forma net income .................................... $205.3 $184.2
====== ======
Basic earnings per share as reported .................... $ 1.00 $ 0.89
Basic earnings per share pro forma ...................... $ 0.97 $ 0.87
Diluted earnings per share as reported .................. $ 0.98 $ 0.88
Diluted earnings per share pro forma .................... $ 0.95 $ 0.85
5
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
For the quarters ended March 31, 2005 and 2004, net income includes $6.1
million and $4.0 million of after-tax compensation cost related to restricted
stock awards.
Recent Accounting Pronouncements
On January 1, 2005, the Company adopted Statement of Position No. 03-3,
"Accounting for Certain Loans or Debt Securities Acquired in a Transfer" ("SOP
03-3"). SOP 03-3 requires acquired loans to be carried at fair value and
prohibits the establishment of credit loss valuation reserves at acquisition for
loans that have evidence of credit deterioration since origination. The
implementation of SOP 03-3 did not have a material financial statement impact.
In December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based
Payment" ("FAS 123R"). FAS 123R requires the recognition of compensation expense
for all stock-based compensation plans as of the beginning of the first annual
reporting period that begins after June 15, 2005. The current accounting for
employee stock options is most impacted by this new standard, as costs
associated with restricted stock awards are already recognized in net income and
amounts associated with employee stock purchase plans are not significant.
Similar to the proforma amounts disclosed historically, the compensation cost
relating to options will be based upon the grant-date fair value of the award
and will be recognized over the vesting period. The financial statement impact
of adopting FAS 123R is not expected to differ materially from proforma amounts
previously disclosed.
In December 2004, the FASB issued FASB Staff Position No. FAS 109-2,
"Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004" ("FSP 109-2"). Given
the lack of clarification of certain provisions and the timing of the Act, FSP
109-2 allows for time beyond the year ended December 31, 2004 (the period of
enactment) to evaluate the effect of the Act on plans for reinvestment or
repatriation of foreign earnings for purposes of applying income tax accounting
under SFAS No. 109. The implementation of FSP 109-2 is not expected to have a
material financial statement impact on the Company, as there are no present
plans to repatriate foreign earnings.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." On
November 7, 2003, certain measurement and classification provisions of SFAS 150,
relating to certain mandatorily redeemable non-controlling interests, were
deferred indefinitely. The adoption of these delayed provisions, which relate
primarily to minority interests associated with finite-lived entities, is not
expected to have a material financial statement impact on the Company.
Note 2 -- Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding for the period. The diluted
EPS computation includes the potential impact of dilutive securities, including
stock options and restricted stock grants. The dilutive effect of stock options
is computed using the treasury stock method, which assumes the repurchase of
common shares by CIT at the average market price for the period. Options that do
not have a dilutive effect (because the exercise price is above the market
price) are not included in the denominator and averaged approximately 16.9
million shares and 16.1 million shares for the quarters ended March 31, 2005 and
2004, respectively.
6
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
The reconciliation of the numerator and denominator of basic EPS with that
of diluted EPS is presented ($ in millions, except per share amounts, which are
in whole dollars; weighted-average share balances in thousands):
Quarter Ended March 31, 2005 Quarter Ended March 31, 2004
--------------------------------------- ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS:
Income available to
common stockholders .......... $210.4 210,656 $1.00 $189.3 211,839 $0.89
Effect of Dilutive Securities:
Restricted shares .............. -- 1,308 -- 540
Stock options .................. -- 3,126 -- 3,430
------ ------- ------ -------
Diluted EPS ....................... $210.4 215,090 $0.98 $189.3 215,809 $0.88
====== ======= ====== =======
Note 3 -- Business Segment Information
The selected financial information by business segment presented below is
based upon the allocation of most corporate expenses. For the quarter ended
March 31, 2005, capital is allocated to the segments by applying different
leverage ratios to each business unit using market and risk criteria. The
capital allocations reflect the relative risk of individual asset classes within
segments and range from approximately 2% of managed assets for U.S. government
guaranteed loans to approximately 15% of managed assets for longer-term assets
such as aerospace and rail. Prior period balances have been adjusted to conform
to current period presentation. ($ in millions)
Specialty Specialty Total Corporate
Finance - Finance - Commercial Corporate Equipment Capital Business and
Commercial Consumer Services Finance Finance Finance Segments Other Consolidated
---------- --------- ---------- --------- --------- ------- -------- ---------- ------------
At and for the Quarter
Ended March 31, 2005
Operating margin .......... $ 206.7 $ 51.2 $ 88.6 $ 94.4 $ 56.7 $ 55.2 $ 552.8 $ 42.3 $ 595.1
Income taxes .............. 39.2 10.4 22.2 25.7 12.7 10.7 120.9 1.9 122.8
Net income (loss) ......... 75.1 16.3 37.3 42.7 20.3 26.6 218.3 (7.9) 210.4
Total financing and
leasing assets .......... 10,922.5 10,338.1 7,184.9 7,195.1 6,625.0 8,813.1 51,078.7 -- 51,078.7
Total managed assets ...... 14,792.7 11,469.6 7,184.9 7,195.1 9,339.9 8,813.1 58,795.3 -- 58,795.3
At and for the Quarter
Ended March 31, 2004
Operating margin .......... $ 195.7 $ 30.4 $ 87.9 $ 71.8 $ 48.3 $ 49.6 $ 483.7 $ 24.9 $ 508.6
Income taxes .............. 39.0 5.1 23.4 17.2 10.4 10.9 106.0 15.1 121.1
Net income ................ 68.8 8.0 37.5 30.9 15.6 23.3 184.1 5.2 189.3
Total financing and
leasing assets .......... 9,583.0 3,465.1 6,450.0 6,284.9 6,871.7 8,366.9 41,021.6 -- 41,021.6
Total managed assets ...... 13,945.6 5,117.0 6,450.0 6,284.9 9,924.2 8,366.9 50,088.6 -- 50,088.6
During the quarter ended June 30, 2005, the Company initiated further
steps to align its business with its customers, to increase productivity and to
improve efficiencies, and the segment reporting was modified accordingly. As
part of the realignment, Commercial Services (part of the former Commercial
Finance segment) is now a stand-alone segment. The other unit, that formerly was
included with the Commercial Finance segment, is now reported in the Corporate
Finance segment, which includes: capital markets & management advisory services,
communications, media & entertainment, as well as energy & infrastructure assets
transferred from Capital Finance and healthcare assets transferred from
Equipment Finance. The segment data included in the table has been conformed to
this presentation (except for the healthcare asset transfer) and is consistent
with management reporting.
7
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
Note 4 -- Concentrations
The following table summarizes the geographic and industry compositions
(by obligor) of financing and leasing portfolio assets ($ in millions):
March 31, 2005 December 31, 2004
-------------------- --------------------
Geographic
North America:
West ............................................ $10,073.2 19.7% $ 8,595.3 19.0%
Northeast ....................................... 9,823.2 19.3% 8,463.4 18.7%
Midwest ......................................... 8,365.2 16.4% 6,907.0 15.3%
Southeast ....................................... 7,370.1 14.4% 6,283.3 14.0%
Southwest ....................................... 5,325.2 10.4% 4,848.3 10.7%
Canada .......................................... 2,510.4 4.9% 2,483.4 5.5%
--------- ----- --------- -----
Total North America ............................. 43,467.3 85.1% 37,580.7 83.2%
Other foreign ................................... 7,611.4 14.9% 7,580.2 16.8%
--------- ----- --------- -----
Total ........................................... $51,078.7 100.0% $45,160.9 100.0%
========= ===== ========= =====
Industry
Manufacturing(1) ................................ $ 7,522.2 14.7% $ 6,932.0 15.4%
Retail(2) ....................................... 6,669.9 13.1% 5,859.4 13.0%
Consumer based lending -- home lending .......... 5,598.7 11.0% 5,069.8 11.2%
Aerospace -- commercial and regional ............ 5,536.5 10.8% 5,512.4 12.2%
Consumer based lending -- education lending ..... 4,435.9 8.7% -- --
Transportation(3) ............................... 2,911.6 5.7% 2,969.6 6.6%
Service industries .............................. 2,751.2 5.4% 2,854.5 6.3%
Consumer based lending -- non-real estate(4) .... 2,362.9 4.6% 2,480.1 5.5%
Wholesaling ..................................... 1,813.9 3.5% 1,727.5 3.8%
Construction equipment .......................... 1,680.1 3.3% 1,603.1 3.5%
Communications(5) ............................... 1,190.5 2.3% 1,292.1 2.9%
Automotive Services ............................. 1,164.6 2.3% 1,196.3 2.6%
Other (no industry greater than 3.0%)(6) ........ 7,440.7 14.6% 7,664.1 17.0%
--------- ----- --------- -----
Total ........................................... $51,078.7 100.0% $45,160.9 100.0%
========= ===== ========= =====
- --------------------------------------------------------------------------------
(1) Includes manufacturers of apparel (3.0%), followed by food and kindred
products, transportation equipment, chemical and allied products,
textiles, rubber and plastics, industrial machinery and equipment, and
other industries.
(2) Includes retailers of apparel (5.7%) and general merchandise (3.6%).
(3) Includes rail, bus, over-the-road trucking industries and business
aircraft.
(4) Includes receivables from consumers in the Specialty Finance - commercial
segment for products in various industries such as computers and related
equipment and the remaining manufactured housing portfolio.
(5) Includes $293.5 million and $335.2 million of equipment financed for the
telecommunications industry at March 31, 2005 and December 31, 2004,
respectively, but excludes telecommunications equipment financed for other
industries.
(6) Includes financing and leasing assets in the energy, power and utilities
sectors, which totaled $1.0 billion, or 2.1% of total financing and
leasing assets at March 31, 2005. This amount includes approximately
$703.4 million in project financing and $263.4 million in rail cars on
lease.
8
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
Note 5 -- Retained Interests in Securitizations and Other Investments
The following table details the components of retained interests in
securitizations and other investments ($ in millions):
March 31, December 31,
2005 2004
--------- ------------
Retained interests in commercial loans:
Retained subordinated securities .................. $ 372.0 $ 446.2
Interest-only strips .............................. 306.8 292.4
Cash reserve accounts ............................. 300.4 323.4
-------- --------
Total retained interests in commercial loans ...... 979.2 1,062.0
-------- --------
Retained interests in consumer loans:(1)
Retained subordinated securities .................. 76.9 76.6
Interest-only strips .............................. 14.2 17.0
-------- --------
Total retained interests in consumer loans ........ 91.1 93.6
-------- --------
Total retained interests in securitizations .......... 1,070.3 1,155.6
Aerospace equipment trust certificates and other(2) .. 52.9 72.6
-------- --------
Total ............................................. $1,123.2 $1,228.2
======== ========
- --------------------------------------------------------------------------------
(1) Comprised of amounts related to home lending receivables securitized.
(2) At December 31, 2004 other includes a $4.7 million investment in common
stock received as part of a loan work-out of an aerospace account.
Note 6 -- Accumulated Other Comprehensive Income / (Loss)
The following table details the components of accumulated other
comprehensive income / (loss), net of tax ($ in millions):
March 31, December 31,
2005 2004
--------- ------------
Changes in fair values of derivatives qualifying as cash flow hedges .... $20.3 $(27.1)
Foreign currency translation adjustments ................................ 5.4 (37.2)
Minimum pension liability adjustments ................................... (2.3) (2.7)
Unrealized gain on equity and securitization investments ................ 7.8 8.6
----- ------
Total accumulated other comprehensive income (loss) ..................... $31.2 $(58.4)
===== ======
The changes in fair values of derivatives qualifying as cash flow hedges
corresponded to higher market interest rates during the quarter, as these
derivatives effectively convert an equivalent amount of variable-rate debt,
including commercial paper, to fixed rates of interest. See Note 7 for
additional information.
Total comprehensive income for the quarters ended March 31, 2005 and 2004
was $300.0 million and $134.5 million.
Note 7 -- Derivative Financial Instruments
As part of managing exposure to interest rate, foreign currency, and, in
limited instances, credit risk, CIT, as an end-user, enters into various
derivative transactions, all of which are transacted in over-the-counter markets
with other financial institutions. Derivatives are utilized to hedge exposures,
and not for speculative purposes. To ensure both appropriate use as a hedge and
to achieve hedge accounting treatment, whenever possible, substantially all
derivatives entered into are designated according to a hedge objective against a
specific or forecasted liability or, in limited instances, assets. The notional
amounts, rates, indices, and maturities of our derivatives closely match the
related terms of the underlying hedged items.
CIT utilizes interest rate swaps to exchange variable-rate interest
underlying forecasted issuances of commercial paper, specific variable-rate debt
instruments, and, in limited instances, variable-rate assets for fixed-rate
amounts. These interest rate swaps are designated as cash flow hedges and
changes in fair value of these swaps, to the extent they are effective as a
hedge, are recorded in other comprehensive income. Ineffective amounts are
recorded in interest expense.
9
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
The components of the adjustment to Accumulated Other Comprehensive Income
for derivatives qualifying as hedges of future cash flows are presented in the
following table ($ in millions).
Fair Value Total
Adjustments of Income Unrealized
Derivatives Tax Effects Gain (Loss)
-------------- ----------- ----------
Balance at December 31, 2004 -- unrealized loss .................... $(41.3) $ 14.2 $(27.1)
Changes in fair values of derivatives qualifying
as cash flow hedges .............................................. 77.7 (30.3) 47.4
------ ------ ------
Balance at March 31, 2005 -- unrealized gain ....................... $ 36.4 $(16.1) $ 20.3
====== ====== ======
The unrealized gain as of March 31, 2005, presented in the preceding
table, primarily reflects our use of interest rate swaps to convert
variable-rate debt to fixed-rate debt, followed by increasing market interest
rates. Assuming no change in interest rates, approximately $5.0 million, net of
tax, of Accumulated Other Comprehensive Income is expected to be reclassified to
earnings over the next twelve months as contractual cash payments are made. The
Accumulated Other Comprehensive Income (along with the corresponding swap asset
or liability) will be adjusted as market interest rates change over the
remaining life of the swaps.
The ineffective amounts, due to changes in the fair value of cash flow
hedges, are recorded as either an increase or decrease to interest expense as
presented in the following table ($ in millions).
Increase/Decrease
Ineffectiveness to Interest Expense
--------------- -------------------
For the quarter ended March 31, 2005 ... $1.4 Increase
For the quarter ended March 31, 2004 ... $0.3 Decrease
CIT also utilizes interest rate swaps to convert fixed-rate interest on
specific debt instruments to variable-rate amounts. These interest rate swaps
are designated as fair value hedges and changes in fair value of these swaps are
effectively recorded as an adjustment to the carrying value of the hedged item,
as the offsetting changes in fair value of the swaps and the hedged items are
recorded in earnings.
The following table presents the notional principal amounts of interest
rate swaps by class and the corresponding hedged liability item ($ in millions):
March 31, December 31,
2005 2004
--------- ------------
Effectively converts the interest rate on
Floating to fixed-rate swaps -- cash flow hedges .... $ 3,292.1 $ 3,533.6 an equivalent amount of commercial
paper, variable-rate notes and selected
assets to a fixed rate.
Effectively converts the interest rate on
Fixed to floating-rate swaps -- fair value hedges ... 6,880.3 7,642.6 an equivalent amount of fixed-rate notes
--------- --------- and selected assets to a variable rate.
Total interest rate swaps............................ $10,172.4 $11,176.2
========= =========
In addition to the swaps in the table above, in conjunction with
securitizations, at March 31, 2005, CIT has $2.1 billion in notional amount of
interest rate swaps outstanding with the related trusts to protect the trusts
against interest rate risk. CIT entered into offsetting swap transactions with
third parties totaling $2.1 billion in notional amount at March 31, 2005 to
insulate the related interest rate risk.
CIT also utilizes foreign currency exchange forward contracts and
cross-currency swaps to hedge currency risk underlying foreign currency loans to
subsidiaries and the net investments in foreign operations. These contracts are
designated as foreign currency cash flow hedges or net investment hedges and
changes in fair value of these contracts are recorded in other comprehensive
income along with the translation gains and losses on the underlying hedged
items. CIT utilizes cross currency swaps to hedge currency risk underlying
foreign currency debt and selected foreign currency assets. These swaps are
designated as foreign currency cash flow hedges or foreign currency fair value
hedges and changes in fair value of these contracts are recorded in other
comprehensive income (for cash flow hedges), or effectively as a basis
adjustment (including the impact of the offsetting adjustment to the carrying
value of the hedged item) to the hedged item (for fair value hedges) along with
the transaction gains and losses on the underlying hedged items.
10
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
During 2005 and 2004, CIT entered into credit default swaps, with a
combined notional value of $118.0 million and terms of 5 years, to economically
hedge certain CIT credit exposures. These swaps do not meet the requirements for
hedge accounting treatment and therefore are recorded at fair value, with both
realized and unrealized gains or losses recorded in other revenue in the
consolidated statement of income. The fair value adjustment for the quarter
ended March 31, 2005 amounted to a $1.2 million pretax loss. CIT also has
certain cross-currency swaps (with a combined notional principal of $256
million) and an interest rate swap (basis swap denominated in U.S. dollars with
notional principal of $935 million) that was acquired in the education lending
acquisition. These instruments economically hedge exposures, but do not qualify
for hedge accounting. These derivatives are recorded at fair value, with both
realized and unrealized gains or losses recorded in other revenue in the
consolidated statement of income.
Note 8 -- Certain Relationships and Related Transactions
CIT is a partner with Dell Inc. ("Dell") in Dell Financial Services L.P.
("DFS"), a joint venture that offers financing to Dell's customers. The joint
venture provides Dell with financing and leasing capabilities that are
complementary to its product offerings and provides CIT with a steady source of
new financings. The joint venture agreement provides Dell with the option to
purchase CIT's 30% interest in DFS in February 2008 based on a formula tied to
DFS profitability, within a range of $100 million to $345 million. CIT has the
right to purchase a minimum percentage of DFS's finance receivables on a
declining scale through January 2010.
CIT regularly purchases finance receivables from DFS at a premium,
portions of which are typically securitized within 90 days of purchase from DFS.
CIT has limited recourse to DFS on defaulted contracts. In accordance with the
joint venture agreement, net income and losses generated by DFS as determined
under GAAP are allocated 70% to Dell and 30% to CIT. The DFS board of directors
voting representation is equally weighted between designees of CIT and Dell,
with one independent director. DFS is not consolidated in CIT's financial
statements and is accounted for under the equity method. At March 31, 2005 and
December 31, 2004, financing and leasing assets related to the DFS program
included in the CIT Consolidated Balance Sheet (but excluding certain related
International receivables originated directly by CIT) were approximately $2.2
billion and $2.0 billion, and securitized assets included in managed assets were
approximately $2.2 billion and $2.5 billion, respectively. In addition to the
owned and securitized assets acquired from DFS, CIT's investment in and loans to
the joint venture were approximately $217 million and $267 million at March 31,
2005 and December 31, 2004.
CIT also has a joint venture arrangement with Snap-on Incorporated
("Snap-on") that has a similar business purpose and model to the DFS arrangement
described above, including limited credit recourse on defaulted receivables. The
agreement with Snap-on extends until January 2006. CIT and Snap-on have 50%
ownership interests, 50% board of directors' representation, and share income
and losses equally. The Snap-on joint venture is accounted for under the equity
method and is not consolidated in CIT's financial statements. At both March 31,
2005 and December 31, 2004, financing and leasing assets were approximately $1.1
billion and securitized assets included in managed assets were $0.1 billion. In
addition to the owned and securitized assets purchased from the Snap-on joint
venture, CIT's investment in and loans to the joint venture were approximately
$18 million and $16 million at March 31, 2005 and December 31, 2004. Both the
Snap-on and the Dell joint venture arrangements were acquired in a 1999
acquisition.
Since December 2000, CIT has been a joint venture partner with Canadian
Imperial Bank of Commerce ("CIBC") in an entity that is engaged in asset-based
lending in Canada. Both CIT and CIBC have a 50% ownership interest in the joint
venture, and share income and losses equally. This entity is not consolidated in
CIT's financial statements and is accounted for under the equity method. At
March 31, 2005 and December 31, 2004, CIT's investment in and loans to the joint
venture were approximately $218 million and $191 million.
CIT invests in various trusts, partnerships, and limited liability
corporations established in conjunction with structured financing transactions
of equipment, power and infrastructure projects. CIT's interests in certain of
these entities were acquired by CIT in a 1999 acquisition, and others were
subsequently entered into in the normal course of business. At both March 31,
2005 and December 31, 2004, other assets included approximately $19 million of
investments in non-consolidated entities relating to such transactions that are
accounted for under the equity or cost methods.
11
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
Certain shareholders of CIT provide investment management, banking and
investment banking services in the normal course of business.
Note 9 -- Postretirement and Other Benefit Plans
The following table discloses various components of pension expense ($ in
millions):
For the Quarters
Ended March 31,
----------------
2005 2004
---- ----
Retirement Plans
Service cost ....................... $5.0 $4.5
Interest cost ...................... 4.3 3.9
Expected return on plan assets ..... (4.8) (4.1)
Amortization of net loss ........... 0.7 0.7
---- ----
Net periodic benefit cost .......... $5.2 $5.0
==== ====
Postretirement Plans
Service cost ....................... $0.6 $0.5
Interest cost ...................... 0.8 0.8
Amortization of net (gain) loss .... 0.2 0.3
---- ----
Net periodic benefit cost .......... $1.6 $1.6
==== ====
Note 10 -- Commitments and Contingencies
The accompanying table summarizes the contractual amounts of
credit-related commitments and purchase and funding commitments. ($ in
millions).
March 31, 2005
--------------------------------------
Due to Expire December 31,
---------------------- 2004
During 2006 Total Total
2005 and beyond Outstanding Outstanding
-------- ---------- ----------- ------------
Credit Related Commitments
Financing and leasing assets ............... $1,180.6 $7,850.1 $9,030.7 $8,428.3
Letters of credit and acceptances:
Standby letters of credit ................ 559.6 36.7 596.3 618.3
Other letters of credit .................. 539.4 0.5 539.9 588.3
Acceptances .............................. 20.3 -- 20.3 16.4
Guarantees ................................. 82.8 12.2 95.0 133.1
Purchase and Funding Commitments
Aerospace purchase commitments ............. 774.0 1,254.0 2,028.0 2,168.0
Other manufacturer purchase commitments .... 470.2 -- 470.2 397.0
Sale-leaseback payments .................... 8.8 464.5 473.3 495.4
Venture capital fund commitments ........... 0.5 36.1 36.6 79.8
In the normal course of meeting the financing needs of its customers, CIT
enters into various credit-related commitments, including commitments to provide
financing and leasing capital, letters of credit and guarantees. Standby letters
of credit obligate CIT to pay the beneficiary of the letter of credit in the
event that a CIT client to which the letter of credit was issued does not meet
its related obligation to the beneficiary. These financial instruments generate
fees and involve, to varying degrees, elements of credit risk in excess of the
amounts recognized in the consolidated balance sheets. To minimize potential
credit risk, CIT generally requires collateral and other credit-related terms
and conditions from the customer. At the time credit-related commitments are
granted, the fair value of the underlying collateral and guarantees typically
approximates or exceeds the contractual amount of the commitment. In the event a
customer defaults on the underlying transaction, the maximum potential loss will
generally be limited to the contractual amount outstanding less the value of all
underlying collateral and guarantees.
12
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
Guarantees are issued primarily in conjunction with CIT's factoring
product, whereby CIT provides the client with credit protection for its trade
receivables without actually purchasing the receivables. The trade terms are
generally sixty days or less. In the event that the customer is unable to pay
according to the contractual terms, then the receivables would be purchased. As
of March 31, 2005, there were no outstanding liabilities relating to these
credit-related commitments or guarantees, as amounts are generally billed and
collected on a monthly basis.
CIT has entered into aerospace commitments to purchase commercial aircraft
from both Airbus Industrie and The Boeing Company. The commitment amounts
detailed in the table are based on appraised values, actual amounts will vary
based upon market factors at the time of delivery. The remaining units to be
purchased are 41, with 15 to be completed in 2005. Lease commitments are in
place for twelve of the fifteen units to be delivered in 2005. The order amount
excludes CIT's options to purchase additional aircraft.
Outstanding commitments to purchase equipment to be leased to customers,
other than the aircraft detailed above, relates primarily to rail equipment.
Additionally, CIT is party to railcar sale-leaseback transactions under which it
is obligated to pay a remaining total of $473.3 million, approximately $31
million per year through 2010 and declining thereafter through 2024, which is
more than offset by CIT's re-lease of the assets, contingent on its ability to
maintain railcar usage. In conjunction with this sale-leaseback transaction, CIT
has guaranteed all obligations of the related consolidated lessee entity.
CIT has guaranteed the public and private debt securities of a number of
its wholly-owned, consolidated subsidiaries, including those disclosed in Note
14 -- Summarized Financial Information of Subsidiaries. In the normal course of
business, various consolidated CIT subsidiaries have entered into other credit
agreements and certain derivative transactions with financial institutions that
are guaranteed by CIT. These transactions are generally used by CIT's
subsidiaries outside of the U.S. to allow the local subsidiary to borrow funds
in local currencies.
Note 11 -- Legal Proceedings
On September 9, 2004, Exquisite Caterers v. Popular Leasing et al.
("Exquisite Caterers"), a putative national class action, was filed against 13
financial institutions, including CIT, who had acquired equipment leases
("NorVergence Leases") from NorVergence, Inc., a reseller of telecommunications
and Internet services to businesses. The Exquisite Caterers lawsuit is now
pending in the Superior Court of New Jersey, Monmouth County. Exquisite Caterers
based its complaint on allegations that NorVergence misrepresented the
capabilities of the equipment leased to its customers and overcharged for the
equipment. The complaint asserts that the NorVergence Leases are unenforceable
and seeks rescission, punitive damages, treble damages and attorneys' fees. In
addition, putative class action suits in Florida, Illinois, New York, and Texas
and several individual suits, all based upon the same core allegations and
seeking the same relief, have been filed by NorVergence customers against CIT
and other financial institutions.
On July 14, 2004, the U.S. Bankruptcy Court ordered the liquidation for
NorVergence under Chapter 7 of the Bankruptcy Code. Thereafter, the Attorneys
General of several states commenced investigations of NorVergence and the
financial institutions, including CIT, that purchased NorVergence Leases. CIT
entered into settlement negotiations with those Attorneys General. CIT reached
separate settlements with the New York and New Jersey Attorneys General. Under
those settlements, lessees in those states will have an opportunity to resolve
all claims by and against CIT by paying a percentage of the remaining balance on
their lease. Negotiations with other Attorneys General are continuing. CIT has
also been asked by the Federal Trade Commission to produce documents for
transactions related to NorVergence. In addition, on February 15, 2005, CIT was
served with a subpoena seeking the production of documents in a grand jury
proceeding being conducted by the U.S. Attorney for the Southern District of New
York in connection with an investigation of transactions related to NorVergence.
CIT is in the process of complying with these information requests.
In addition, there are various proceedings against CIT, which have arisen
in the ordinary course of business. While the outcomes of the NorVergence
related litigation and the ordinary course legal proceedings, and the related
activities, are not certain, based on present assessments, management does not
believe that they will have a material adverse effect on the financial condition
of CIT.
13
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
Note 12 -- Severance and Facility Restructuring Reserves
The following table summarizes previously established purchase accounting
liabilities (pre-tax) related to severance of employees and closing facilities,
as well restructuring activities during 2005 ($ in millions):
Severance Facilities
--------------------- ----------------------
Number of Number of Total
Employees Reserve Facilities Reserve Reserves
--------- ------- ---------- ------- --------
Balance at December 31, 2004 ... 129 $12.2 15 $5.7 $17.9
2005 additions ................. -- -- -- 2.5 2.5
2005 utilization ............... (20) (3.9) (1) (0.7) (4.6)
--- ----- -- ---- -----
Balance at March 31, 2005 ...... 109 $ 8.3 14 $7.5 $15.8
=== ===== == ==== =====
The beginning severance reserves relate primarily to the 2004 acquisition
of a Western European vendor finance and leasing business, and include amounts
payable within the year after the acquisition to individuals who chose to
receive payments on a periodic basis. Severance and facilities restructuring
liabilities were established under purchase accounting in conjunction with fair
value adjustments to acquired assets and liabilities. The additions during the
quarter ended March 31, 2005 correspond to facility exit plan refinements
relating to the acquired Western European vendor finance and leasing business,
and were similarly recorded as fair value adjustments to purchased liabilities
(additions to goodwill). The facility reserves relate primarily to shortfalls in
sublease transactions and will be utilized over the remaining lease terms,
generally 6 years.
Note 13 -- Goodwill and Intangible Assets, Net
Goodwill and intangible assets totaled $906.4 million and $596.5 million
at March 31, 2005 and December 31, 2004. The Company periodically reviews and
evaluates its goodwill and other intangible assets for potential impairment.
Effective October 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), under which goodwill is no longer amortized but
instead is assessed periodically for impairment.
The most recent goodwill impairment analysis was performed during the
fourth quarter of 2004, which indicated that the fair value of goodwill was in
excess of the carrying value.
The following table summarizes the goodwill balance by segment ($ in
millions):
Specialty Specialty
Finance - Finance - Commercial
Commercial Consumer Finance Total
---------- ---------- ---------- ------
Balance at December 31, 2004 ...................... $62.3 $ -- $370.4 $432.7
Additions, foreign currency translation, other .... 0.7 257.6 -- 258.3
----- ------ ------ ------
Balance at March 31, 2005 ......................... $63.0 $257.6 $370.4 $691.0
===== ====== ====== ======
The increase in goodwill during the quarter was primarily due to the
education lending acquisition in Specialty Finance -- consumer. Management is in
the process of finalizing additional integration plans relating to this
acquisition. Accordingly, additional purchase accounting refinements may result
in an adjustment to goodwill and acquired intangibles.
Other intangible assets, net, are comprised primarily of acquired customer
relationships (Specialty Finance and Commercial Finance balances), as well as
proprietary computer software and related transaction processes (Commercial
Finance). The following table summarizes the net intangible asset balances by
segment ($ in millions):
Specialty Specialty
Finance - Finance - Commercial
Commercial Consumer Finance Total
---------- ---------- ---------- ------
Balance at December 31, 2004 ...................... $68.0 $ -- $ 95.8 $163.8
Additions, foreign currency translation, other .... (2.8) 29.0 30.0 56.2
Amortization ...................................... (2.4) -- (2.2) (4.6)
----- ----- ------ ------
Balance at March 31, 2005 ......................... $62.8 $29.0 $123.6 $215.4
===== ===== ====== ======
14
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
The increase was primarily related to the education lending acquisition in
Specialty Finance - consumer and a factoring acquisition in Commercial Finance.
Other intangible assets are being amortized over their corresponding lives
ranging from five to twenty years in relation to the related cash flows, where
applicable. Amortization expense totaled $4.6 million and $2.2 million for the
quarters ended March 31, 2005 and 2004. Accumulated amortization totaled $28.3
million and $23.7 million at March 31, 2005 and December 31, 2004. The projected
amortization for the years ended December 31, 2005 through December 31, 2009 is:
$20.8 million for 2005; $20.3 million for 2006; $17.0 million for 2007; $17.1
million for 2008 and $17.3 million for 2009.
Note 14 -- Summarized Financial Information of Subsidiaries
The following presents condensed consolidating financial information for
CIT Holdings LLC and Capita Corporation (formerly AT&T Capital Corporation). CIT
has guaranteed on a full and unconditional basis the existing debt securities
that were registered under the Securities Act of 1933 and certain other
indebtedness of these subsidiaries. CIT has not presented related financial
statements or other information for these subsidiaries on a stand-alone basis.
($ in millions)
CIT
CONSOLIDATING CIT Capita Holdings Other
BALANCE SHEETS Group Inc. Corporation LLC Subsidiaries Eliminations Total
-------------- ---------- ----------- -------- ------------ ------------ ---------
March 31, 2005
ASSETS
Net finance receivables ............... $ 1,078.0 $3,434.1 $1,759.7 $34,290.3 $ -- $40,562.1
Operating lease equipment, net ........ -- 517.0 126.8 7,669.3 -- 8,313.1
Finance receivables held for sale ..... -- 117.4 69.6 1,294.3 -- 1,481.3
Cash and cash equivalents ............. 826.5 667.3 73.6 70.7 -- 1,638.1
Other assets .......................... 10,068.0 91.4 292.5 652.5 (6,318.0) 4,786.4
--------- -------- -------- --------- --------- ---------
Total Assets ........................ $11,972.5 $4,827.2 $2,322.2 $43,977.1 $(6,318.0) $56,781.0
========= ======== ======== ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt .................................. $35,876.6 $ 459.2 $1,224.0 $ 4,965.5 $ -- $42,525.3
Credit balances of factoring clients .. -- -- -- 4,269.8 -- 4,269.8
Accrued liabilities and payables ...... (30,222.1) 3,800.1 (451.2) 30,492.3 -- 3,619.1
--------- -------- -------- --------- --------- ---------
Total Liabilities ................... 5,654.5 4,259.3 772.8 39,727.6 -- 50,414.2
Minority interest ..................... -- -- 48.8 -- 48.8
Total Stockholders' Equity ............ 6,318.0 567.9 1,549.4 4,200.7 (6,318.0) 6,318.0
--------- -------- -------- --------- --------- ---------
Total Liabilities and
Stockholders' Equity ................ $11,972.5 $4,827.2 $2,322.2 $43,977.1 $(6,318.0) $56,781.0
========= ======== ======== ========= ========= =========
December 31, 2004
ASSETS
Net finance receivables ............... $ 1,121.1 $3,129.8 $1,682.7 $28,497.4 $ -- $34,431.0
Operating lease equipment, net ........ -- 517.9 130.8 7,642.2 -- 8,290.9
Finance receivables held for sale ..... -- 122.4 72.0 1,446.4 -- 1,640.8
Cash and cash equivalents ............. 1,311.4 670.8 127.5 100.5 -- 2,210.2
Other assets .......................... 9,536.8 (278.9) 316.2 1,019.4 (6,055.1) 4,538.4
--------- -------- -------- --------- --------- ---------
Total Assets ........................ $11,969.3 $4,162.0 $2,329.2 $38,705.9 $(6,055.1) $51,111.3
========= ======== ======== ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt .................................. $34,699.1 $ 487.8 $1,383.8 $ 1,154.1 $ -- $37,724.8
Credit balances of factoring clients .. -- -- -- 3,847.3 -- 3,847.3
Accrued liabilities and payables ...... (28,784.9) 3,184.5 (591.3) 29,635.4 -- 3,443.7
--------- -------- -------- --------- --------- ---------
Total Liabilities ................... 5,914.2 3,672.3 792.5 34,636.8 -- 45,015.8
Minority interest ..................... -- -- 40.4 -- 40.4
Total Stockholders' Equity ............ 6,055.1 489.7 1,536.7 4,028.7 (6,055.1) 6,055.1
--------- -------- -------- --------- --------- ---------
Total Liabilities and
Stockholders' Equity ................ $11,969.3 $4,162.0 $2,329.2 $38,705.9 $(6,055.1) $51,111.3
========= ======== ======== ========= ========= =========
15
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
CIT
CONSOLIDATING CIT Capita Holdings Other
STATEMENTS OF INCOME Group Inc. Corporation LLC Subsidiaries Eliminations Total
-------------------- ---------- ----------- -------- ------------ ------------ --------
Three Months Ended March 31, 2005
Finance income ............................ $ 5.5 $162.9 $ 55.7 $797.9 $ -- $1,022.0
Interest expense .......................... (22.4) 41.6 3.6 371.4 -- 394.2
------ ------ ------ ------ ------- --------
Net finance income ........................ 27.9 121.3 52.1 426.5 -- 627.8
Depreciation on operating
lease equipment ......................... -- 66.5 11.0 160.1 -- 237.6
------ ------ ------ ------ ------- --------
Net finance margin ........................ 27.9 54.8 41.1 266.4 -- 390.2
Provision for credit losses ............... 1.8 11.1 2.1 30.3 -- 45.3
------ ------ ------ ------ ------- --------
Net finance margin, after provision
for credit losses ....................... 26.1 43.7 39.0 236.1 -- 344.9
Equity in net income of subsidiaries ...... 224.4 -- -- -- (224.4) --
Other revenue ............................. 4.5 33.3 21.4 180.2 -- 239.4
Net gain on venture capital investments -- -- -- 10.8 -- 10.8
------ ------ ------ ------ ------- --------
Operating margin .......................... 255.0 77.0 60.4 427.1 (224.4) 595.1
Operating expenses ........................ 52.1 26.6 18.5 163.8 -- 261.0
------ ------ ------ ------ ------- --------
Income (loss) before provision for
income taxes ............................ 202.9 50.4 41.9 263.3 (224.4) 334.1
Benefit (Provision) for income taxes ...... 7.5 (18.9) (15.4) (96.0) -- (122.8)
Minority interest, after tax .............. -- -- -- (0.9) -- (0.9)
------ ------ ------ ------ ------- --------
Net income ................................ $210.4 $ 31.5 $ 26.5 $166.4 $(224.4) $ 210.4
====== ====== ====== ====== ======= ========
Three Months Ended March 31, 2004
Finance income ............................ $ 9.5 $184.4 $ 47.6 $655.4 $ -- $ 896.9
Interest expense .......................... (22.9) 54.1 3.9 262.9 -- 298.0
------ ------ ------ ------ ------- --------
Net finance income ........................ 32.4 130.3 43.7 392.5 -- 598.9
Depreciation on operating
lease equipment ......................... -- 84.6 11.1 140.1 -- 235.8
------ ------ ------ ------ ------- --------
Net finance margin ........................ 32.4 45.7 32.6 252.4 -- 363.1
Provision for credit losses ............... 4.2 10.7 2.6 68.1 -- 85.6
------ ------ ------ ------ ------- --------
Net finance margin, after provision
for credit losses ....................... 28.2 35.0 30.0 184.3 -- 277.5
Equity in net income of subsidiaries ...... 155.6 -- -- -- (155.6) --
Other revenue ............................. 0.6 31.3 32.6 165.9 -- 230.4
Net gain on venture capital investments -- -- -- 0.7 -- 0.7
------ ------ ------ ------ ------- --------
Operating margin .......................... 184.4 66.3 62.6 350.9 (155.6) 508.6
Operating expenses ........................ 18.6 36.7 23.2 161.5 -- 240.0
Gain on redemption of debt ................ 41.8 -- -- -- -- 41.8
------ ------ ------ ------ ------- --------
Income (loss) before provision for
income taxes ............................ 207.6 29.6 39.4 189.4 (155.6) 310.4
Provision for income taxes ................ (18.3) (11.5) (15.4) (75.9) -- (121.1)
------ ------ ------ ------ ------- --------
Net income ................................ $189.3 $ 18.1 $ 24.0 $113.5 $(155.6) $ 189.3
====== ====== ====== ====== ======= ========
16
CIT GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Unaudited) (Continued)
CIT
CONSOLIDATING CIT Capita Holdings Other
STATEMENT OF CASH FLOWS Group Inc. Corporation LLC Subsidiaries Eliminations Total
----------------------- ---------- ----------- -------- ------------ ------------ ---------
Three Months Ended March 31, 2005
Cash Flows From Operating Activities:
Net cash flows provided by
(used for) operations ................... $ 2,648.2 $(294.3) $ 280.8 $(1,698.7) $ -- $ 936.0
--------- ------- ------- --------- --------- ---------
Cash Flows From Investing Activities:
Net (decrease) increase in financing and
leasing assets .......................... 42.4 (359.2) (78.3) (1,372.6) -- (1,767.7)
Decrease in inter-company loans
and investments ......................... (4,325.2) -- -- -- 4,325.2 --
Other ..................................... -- -- -- 95.5 -- 95.5
--------- ------- ------- --------- --------- ---------
Net cash flows (used for) provided by
investing activities .................... (4,282.8) (359.2) (78.3) (1,277.1) 4,325.2 (1,672.2)
--------- ------- ------- --------- --------- ---------
Cash Flows From Financing Activities:
Net increase (decrease) in debt ........... 1,177.5 (28.6) (159.8) (620.0) -- 369.1
Net loans extended-pledged ................ -- -- -- (167.9) -- (167.9)
Inter-company financing ................... -- 678.6 (96.6) 3,743.2 (4,325.2) --
Cash dividends paid ....................... (27.8) -- -- -- -- (27.8)
Other ..................................... -- -- -- (9.3) -- (9.3)
--------- ------- ------- --------- --------- ---------
Net cash flows provided by
(used for) financing activities ......... 1,149.7 650.0 (256.4) 2,946.0 (4,325.2) 164.1
--------- ------- ------- --------- --------- ---------
Net (decrease) in cash and
cash equivalents ........................ (484.9) (3.5) (53.9) (29.8) -- (572.1)
Cash and cash equivalents,
beginning of period ..................... 1,311.4 670.8 127.5 100.5 -- 2,210.2
--------- ------- ------- --------- --------- ---------
Cash and cash equivalents,
end of period ........................... $ 826.5 $ 667.3 $ 73.6 $ 70.7 $ -- $ 1,638.1
========= ======= ======= ========= ========= =========
Three Months Ended March 31, 2004
Cash Flows From Operating Activities:
Net cash flows provided by
(used for) operations ................... $ 65.0 $ (83.3) $(141.1) $ 877.5 $ -- $ 718.1
--------- ------- ------- --------- --------- ---------
Cash Flows From Investing Activities:
Net (decrease) increase in financing and
leasing assets .......................... 374.0 154.4 18.1 (2,222.6) -- (1,676.1)
Decrease in inter-company loans
and investments ......................... (2,508.4) -- -- -- 2,508.4 --
Other ..................................... -- -- -- (1.1) -- (1.1)
--------- ------- ------- --------- --------- ---------
Net cash flows (used for) provided by
investing activities .................... (2,134.4) 154.4 18.1 (2,223.7) 2,508.4 (1,677.2)
--------- ------- ------- --------- --------- ---------
Cash Flows From Financing Activities:
Net increase (decrease) in debt ........... 1,222.7 (467.2) 25.7 (403.3) -- 377.9
Inter-company financing ................... -- 458.1 126.1 1,924.2 (2,508.4) --
Cash dividends paid ....................... -- -- -- (28.0) -- (28.0)
Other ..................................... -- -- -- (8.0) -- (8.0)
--------- ------- ------- --------- --------- ---------
Net cash flows provided by
(used for) financing activities ......... 1,222.7 (9.1) 151.8 1,484.9 (2,508.4) 341.9
--------- ------- ------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ........................ (846.7) 62.0 28.8 138.7 -- (617.2)
Cash and cash equivalents,
beginning of period ..................... 1,479.9 410.6 227.5 (144.3) -- 1,973.7
--------- ------- ------- --------- --------- ---------
Cash and cash equivalents,
end of period ........................... $ 633.2 $ 472.6 $ 256.3 $ (5.6) $ -- $ 1,356.5
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