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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 FORM 10-Q
Commission File Number: 001-31369 CIT GROUP INC. (Exact name of Registrant as specified in its
charter)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No
|_|
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes |X| No |_|
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. Large accelerated filer |X| Accelerated filer
|_| Non-accelerated filer |_| Smaller reporting company |_|.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court. Yes |X| No |_|
As of July 31, 2012 there were 200,838,406 shares of the
registrant’s common stock outstanding.
CONTENTS
Table of Contents 1
Part One—Financial
Information
ITEM 1. Consolidated Financial Statements
CIT GROUP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (dollars in millions – except share data)
The accompanying notes are an integral part of these
consolidated financial statements.
2 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (dollars in millions – except per share data)
The accompanying notes are an integral part of these consolidated financial statements. Item 1: Consolidated Financial Statements
3
CIT GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (dollars in millions)
The accompanying notes are an integral part of these consolidated financial statements. 4 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Unaudited) (dollars in millions)
The accompanying notes are an integral part of these consolidated financial statements. Item 1: Consolidated Financial Statements
5
CIT GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (dollars in millions)
The accompanying notes are an integral part of these consolidated financial statements. 6 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
CIT Group Inc. has provided financial solutions to its clients
since its formation in 1908. We provide financing and leasing capital principally for small businesses and middle market companies in a wide variety of
industries and offer vendor, equipment, commercial and structured financing products, as well as factoring and management advisory services. CIT became
a bank holding company (“BHC”) in 2008 and is the parent of CIT Bank, a state-chartered bank in Utah. We operate primarily in North America,
with locations in Europe, South America and Asia.
BASIS OF PRESENTATION
Principles of Consolidation The accompanying consolidated financial statements include
financial information related to CIT Group Inc., a Delaware Corporation, and its majority owned subsidiaries, including CIT Bank (collectively,
“CIT” or the “Company”), and those variable interest entities (“VIEs”) where the Company is the primary beneficiary.
Assets held in an agency or fiduciary capacity are not included in the consolidated financial statements.
In preparing the consolidated financial statements, all
significant intercompany accounts and transactions have been eliminated. These consolidated financial statements, which have been prepared in
accordance with the instructions to Form 10-Q, do not include all information and note disclosures required by generally accepted accounting principles
in the United States of America (“GAAP”). The financial statements in this Form 10-Q have not been audited by an independent registered
public accounting firm in accordance with 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 presentation of CIT’s financial position, results of
operations and cash flows in accordance with GAAP. These consolidated financial statements should be read in conjunction with our current Form 10-K on
file.
The consolidated financial statements include the effects of
adopting Fresh Start Accounting (“FSA”) upon emergence from bankruptcy on December 10, 2009, based on a convenience date of December 31, 2009
(the “Convenience Date”), as required by GAAP. Accretion and amortization of certain FSA adjustments are included in the Statements of
Operations and Cash Flows. See the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 (“Form 10-K”), “Note 1
— Business and Summary of Significant Accounting Policies” and “Note 26 — Fresh Start Accounting”, for additional FSA and
reorganization information.
The accounting and financial reporting policies of CIT Group Inc.
conform to GAAP and the preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported
amounts and disclosures. Actual results could differ from those estimates and assumptions. Some of the more significant estimates include: fresh start
accounting fair values; valuation of deferred tax assets; lease residual values and depreciation of operating lease equipment; and allowance for loan
losses. Additionally, where applicable, the policies conform to accounting and reporting guidelines prescribed by bank regulatory
authorities.
NEW ACCOUNTING PRONOUNCEMENTS
Fair Value Measurement In May 2011, the FASB issued ASU No. 2011-04, Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. The new
guidance results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. GAAP
and IFRS. The disclosure requirements also have been enhanced. The most significant change requires entities, for their recurring Level 3 fair value
measurements, to disclose quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a
qualitative discussion about the sensitivity of the measurements. New disclosures are required about the use of a nonfinancial asset measured or
disclosed at fair value if its use differs from its highest and best use. In addition, entities must report the level in the fair value hierarchy of
assets and liabilities not recorded at fair value but where fair value is disclosed. The amendment became effective for fiscal years beginning after
December 15, 2011, with early adoption prohibited. The adoption of the guidance during the quarter ended March 31, 2012, did not affect the
Company’s financial condition and resulted in additional fair value measurement disclosures.
Comprehensive Income
In June 2011, the FASB issued ASU No. 2011-05 to amend the
guidance on the presentation of comprehensive income in FASB ASC Topic 220, Comprehensive Income that requires companies to present a single
statement of comprehensive income or two consecutive statements. The guidance makes the financial statement presentation of other comprehensive income
more prominent by eliminating the alternative to present comprehensive income within the statement of equity. The ASU became effective for annual and
interim periods beginning after December 15, 2011. The adoption of the guidance during the quarter ended March 31, 2012 did not affect the
Company’s financial condition but added the Consolidated Statements of Comprehensive Income (Loss).
On December 23, 2011, the FASB issued ASU No. 2011-12,
Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated
Other Comprehensive Income in Accounting Standards Update No. 2011-05. The ASU defers the requirement to present components of reclassifications of
other comprehensive income on the face of the income statement, while still requiring companies to adopt the other requirements contained in ASU No.
2011-05, as noted above.
Item 1: Consolidated Financial Statements
7
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Balance Sheet Offsetting Disclosure
Requirements
In December 2011, the FASB issued ASU No. 2011-11, Disclosures
about Offsetting Assets and Liabilities which creates new disclosure requirements about the nature of an entity’s rights of setoff and related
arrangements associated with its financial instruments and derivative instruments. The new disclosures will enable financial statement users to compare
balance sheets prepared under U.S. GAAP and International Financial Reporting Standards (“IFRS”), which are subject to different offsetting
models. The disclosures will be limited to financial instruments and derivatives subject to enforceable master netting arrangements or similar
agreements and excludes loans unless they are netted in the statement of financial condition. The amendments will affect all entities that have
financial instruments and derivatives that are either offset in the balance sheet or subject to an enforceable master netting arrangement or similar
agreement regardless of whether they are offset in the balance sheet. The ASU will require entities to disclose, separately for financial assets and
liabilities, including derivatives, the gross amounts of recognized financial assets and liabilities; the amounts offset under current U.S. GAAP; the
net amounts presented in the balance sheet; the amounts subject to an enforceable master netting arrangement or similar agreement that were not
included in the offset amount above, and the reconciling amount.
The disclosure requirements are effective for annual and interim
reporting periods beginning on or after January 1, 2013, with retrospective application required. The Company is evaluating the impact of this
amendment.
Indefinite-Lived Intangible Assets Impairment
Test
In July 2012, the FASB issued ASU No. 2012-02, Testing
Indefinite-Lived Intangible Assets for Impairment which amends the guidance in ASC Topic 350 on testing indefinite-lived intangible assets other than
goodwill for impairment. Under ASC 350-30, entities must test indefinite-lived intangible assets for impairment at least annually by calculating and
comparing an asset’s fair value with its carrying amount. An impairment loss would be recorded for an amount equal to the excess of the
asset’s carrying amount over its fair value. ASU No. 2012-02 provides the option of performing a qualitative assessment before calculating the
fair value of the asset, when testing an indefinite-lived intangible asset for impairment. If an entity determines, on the basis of qualitative
factors, that the fair value of an indefinite-lived intangible asset is not more likely than not impaired, they would not need to calculate the fair
value of the asset. The ASU does not revise the requirement to test indefinite-lived intangible assets annually for impairment. In addition, the ASU
does not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances; however, it
does revise the examples of events and circumstances that an entity should consider in interim periods.
The guidance will be effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early
adoption is permitted. The Company is currently evaluating the potential impact of adopting the ASU. NOTE 2 — LOANS
Finance receivables consist of the following:
Finance Receivables by Product (dollars in millions)
The following table presents finance receivables by segment,
based on obligor location:
Finance Receivables (dollars in millions)
8 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents selected components of the net
investment in finance receivables.
Components of Net Investment in Finance Receivables (dollars in millions)
Certain of the following tables present credit-related information at the “class” level in accordance with ASC 310-10-50,
Disclosures about the Credit Quality of Finance Receivables and the Allowance for Credit Losses. A class is generally a disaggregation of a
portfolio segment. In determining the classes, CIT considered the finance receivable characteristics and methods it applies in monitoring and assessing
credit risk and performance. Credit Quality Information
The following table summarizes finance receivables by the risk
ratings that bank regulatory agencies utilize to classify credit exposure and which are consistent with indicators the Company monitors. Risk ratings
are reviewed on a regular basis by Credit Risk Management and are adjusted as necessary for updated information affecting the borrowers’ ability
to fulfill their obligations.
The definitions of these ratings are as follows:
Finance Receivables(1) — By Classification (dollars in millions)
Item 1: Consolidated Financial Statements
9
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Past Due and Non-accrual Loans
The table that follows presents portfolio delinquency status,
regardless of accrual/non-accrual classification:
Finance Receivables(1) — Delinquency Status (dollars in millions)
10 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth non-accrual loans and assets
received in satisfaction of loans (repossessed assets). Non-accrual loans include loans greater than $500,000 that are individually evaluated and
determined to be impaired, as well as loans less than $500,000 that are delinquent (generally for 90 days or more).
Finance Receivables on Non-accrual Status (dollars in millions)
Payments received on non-accrual financing receivables are
generally applied against outstanding principal.
Impaired Loans
The Company’s policy is to review for impairment finance
receivables greater than $500,000 that are on non-accrual status. Consumer loans and small-ticket loan and lease receivables that have not been
modified in a troubled debt restructuring, as well as short-term factoring receivables, are included (if appropriate) in the reported non-accrual
balances above, but are excluded from the impaired finance receivables disclosure below as charge-offs are typically determined and recorded for such
loans when they are more than 120 – 150 days past due.
The following table contains information about impaired finance
receivables and the related allowance for credit losses, exclusive of finance receivables that were identified as impaired at the Convenience Date for
which the Company is applying the income recognition and disclosure guidance in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated
Credit Quality), which are disclosed further below in this note.
Item 1: Consolidated Financial Statements
11
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impaired Loans (dollars in millions)
12 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Impairment occurs when, based on current information and events,
it is probable that CIT will be unable to collect all amounts due according to the contractual terms of the agreement. The Company has established
review and monitoring procedures designed to identify, as early as possible, customers that are experiencing financial difficulty. Credit risk is
captured and analyzed based on the Company’s internal probability of obligor default (PD) and loss given default (LGD) ratings. A PD rating is
determined by evaluating borrower credit-worthiness, including analyzing credit history, financial condition, cash flow adequacy, financial performance
and management quality. An LGD rating is predicated on transaction structure, collateral valuation and related guarantees or recourse. Further, related
considerations in determining probability of collection include the following:
Impairment is measured as the shortfall between estimated value
and recorded investment in the finance receivable. A specific allowance or charge-off is recorded for the shortfall. In instances where the estimated
value exceeds the recorded investment, no specific allowance is recorded. The estimated value is determined using fair value of collateral and other
cash flows if the finance receivable is collateralized, or the present value of expected future cash flows discounted at the contract’s effective
interest rate. In instances when the Company measures impairment based on the present value of expected future cash flows, the change in present value
is reported in the provision for credit losses.
The following summarizes key elements of the Company’s
policy regarding the determination of collateral fair value in the measurement of impairment:
Loans and Debt Securities Acquired with Deteriorated Credit
Quality
For purposes of this presentation, finance receivables that were
identified as impaired at the Convenience Date are presented separately below. The Company is applying the income recognition and disclosure guidance
in ASC 310-30 (Loans and Debt Securities Acquired with Deteriorated Credit Quality) to loans considered impaired under FSA at the time of
emergence.
Loans Acquired with Deteriorated Credit Quality (dollars in millions)
Item 1: Consolidated Financial Statements
13
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the changes to the accretable discount related to all loans accounted for under ASC 310-30 (Loans and Debt
Securities Acquired with Deteriorated Credit Quality). Amounts include discount relating to non-accrual loans, for which accretion has been
suspended. Accretable discount activity for loans accounted for under ASC 310-30 at Emergence Date (dollars in millions):
Troubled Debt Restructurings
The Company periodically modifies the terms of finance
receivables in response to borrowers’ difficulties. Modifications that include a financial concession to the borrower are accounted for as
troubled debt restructurings (TDRs).
CIT uses a consistent methodology across all loans to determine
if a modification is with a borrower that has been determined to be in financial difficulty and was granted a concession. Specifically, the
Company’s policies on TDR identification include the following examples of indicators used to determine whether the borrower is in financial
difficulty:
If CIT determines the borrower is in financial difficulty, then
CIT utilizes the following criteria to determine whether a concession has been granted to the borrower:
Modified loans that are classified as TDRs are individually
evaluated and measured for impairment. Modified loans that meet the definition of a TDR are subject to the Company’s standard impaired loan
policy, namely that non-accrual loans in excess of $500,000 are individually reviewed for impairment, while non-accrual loans less than $500,000 are
considered as part of homogenous pools and are included in the determination of the non-specific allowance.
The recorded investment of TDRs at June 30, 2012 and December 31,
2011 was $340.3 million and $445.2 million, of which 43% and 63%, respectively, were on non-accrual. Corporate Finance receivables accounted for 88% of
the total TDRs at June 30, 2012 and December 31, 2011. At June 30, 2012 and December 31, 2011, there were $12.8 million and $27.8 million,
respectively, of commitments to lend additional funds to borrowers whose loan terms have been modified in TDRs.
The tables that follow present additional information related to
modifications qualifying as TDRs that occurred during the quarters ended June 30, 2012 and 2011.
14 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Recorded investment of TDRs that occurred during the periods ended June 30, 2012 and 2011 (dollars in millions)
Recorded investment of TDRs at the time of default that experienced a payment default(1) in the periods presented, and for which the payment default occurred within one year of the modification (dollars in millions)
The financial impact of the various modification strategies that
the Company employs in response to borrower difficulties is described below. While the discussion focuses on current quarter amounts, the overall
nature and impact of modification programs were comparable in the current and prior years.
Item 1: Consolidated Financial Statements
15
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 — ALLOWANCE FOR LOAN LOSSES
The following table presents changes in the allowance for loan
losses.
Allowance for Credit Losses and Recorded Investment in Finance Receivables (dollars in millions)
16 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 — INVESTMENT SECURITIES
The Company invests primarily in U.S. Treasury securities, U.S.
Government Agency securities and Canadian Government securities. These investments typically mature in 91 days or less, and the carrying value
approximates fair value.
Total investment securities include debt and equity securities.
Debt instruments primarily consisted of U.S. Treasuries, U.S. agency bonds and foreign government bonds while equity securities include common stock
and warrants.
Investment Securities (dollars in millions)
Item 1: Consolidated Financial Statements
17
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Debt and equity securities are classified based on
management’s intention on the date of purchase and assessed at each reporting date. Debt securities classified as held-to-maturity represent
securities that the Company has both the ability and intent to hold until maturity, and are carried at amortized cost.
Debt securities and equity securities classified as
available-for-sale are carried at fair value with changes in fair value reported in other comprehensive income (“OCI”), net of applicable
income taxes.
Non-marketable equity securities are carried at cost and
periodically assessed for other-than-temporary impairment (“OTTI”).
The Company conducts and documents periodic reviews of all
securities with unrealized losses to evaluate whether the impairment is OTTI. For debt securities classified as held-to-maturity that are considered to
have OTTI that the Company does not intend to sell and it is more likely than not that the Company will not be required to sell before recovery, the
OTTI impairment is separated into an amount representing the credit loss, which is recognized in the Consolidated Statement of Operations and the
amount related to all other factors, which is recognized in OCI. OTTI on debt securities and equity securities classified as available-for-sale and
non-marketable securities are recognized in the Consolidated Statement of Operations in the period determined.
The following table presents interest and dividends on
investments:
Interest and Dividend Income (dollars in millions)
Gross realized investment gains totaled $4.6 million and $11.6
million for the quarters ended June 30, 2012 and 2011, respectively, and exclude losses from other-than-temporary impairments (“OTTI”).
Similarly, year to date gross realized investment gains were $23.7 million in 2012 and $34.6 million in the prior year period. OTTI credit-related
impairments on equity securities recognized in earnings were not material for the quarter and six months ended June 30, 2012 and totaled $1.3 million
and $7.4 million for the prior-year quarter and year to date, respectively. Impairment amounts in accumulated other comprehensive income
(“AOCI”) were not material at June 30, 2012 or December 31, 2011.
Securities Available-for-Sale
The following table presents amortized cost and fair value of
securities available-for-sale (“AFS”) at June 30, 2012 and December 31, 2011.
Securities Available-for-Sale — Amortized Cost and Fair Value (dollars in millions)
18 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Debt Securities Held-to-Maturity
The carrying value and fair value of securities held-to-maturity
(“HTM”) at June 30, 2012 and December 31, 2011 were as follows:
Securities Held-to-Maturity — Carrying Value and Fair Value (dollars in millions)
Item 1: Consolidated Financial Statements
19
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the amortized cost and fair value of
debt securities HTM by contractual maturity dates:
Securities Held-to-Maturity — Amortized Cost and Fair Value Maturities (dollars in millions)
20 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 — LONG-TERM BORROWINGS
The following table presents outstanding long-term borrowings,
net of FSA. The fair value adjustment is amortized as a cost adjustment over the remaining term of the respective debt and is reflected in Interest
Expense.
Long-term Borrowings (dollars in millions)
Unsecured
Revolving Credit Facility On August 25, 2011, CIT and certain of its subsidiaries entered
into a Revolving Credit and Guaranty Agreement, among CIT Group Inc., certain subsidiaries of CIT Group Inc., as guarantors, the lenders party thereto
from time to time and Bank of America, N.A., as administrative agent, collateral agent and letter of credit issuer (the “Revolving Credit
Facility”). The total commitment amount under the Revolving Credit Facility is $2 billion consisting of a $1.65 billion revolving loan tranche and
a $350 million revolving loan tranche that can also be utilized for issuance of letters of credit. The Revolving Credit Facility matures on August 14,
2015 and will accrue interest at a per annum rate of LIBOR plus a margin of 2.00% to 2.75% (with no floor) or Base Rate plus a margin of 1.00% to 1.75%
(with no floor). The applicable margin will be determined by reference to the long-term senior unsecured, non-credit enhanced debt rating of the
Company by S&P and Moody’s effective at relevant times during the life of the Revolving Credit Facility. Due to the Company’s credit
rating upgrades in 2012, the applicable margin for LIBOR loans is now 2.50% and the applicable margin for Base Rate loans is now 1.50% at June 30,
2012.
The Revolving Credit Facility may be prepaid and re-borrowed from
time to time at the option of CIT. The amount available to draw upon at June 30, 2012 was approximately $1.4 billion. The unutilized portion of any
commitment under the Revolving Credit Facility may be reduced permanently or terminated by CIT at any time without penalty.
Once the Company redeemed all the remaining Series A
Second-Priority Secured Notes (“Series A Notes”) during the 2012 first quarter, all the collateral and subsidiary guarantees under the
Revolving Credit Facility were released, except for subsidiary guarantees from eight of the Company’s domestic operating subsidiaries
(“Continuing Guarantors”). Once the Revolving Credit Facility became unsecured, the collateral coverage covenant was replaced by an asset
coverage covenant (based on the book value of eligible assets of the Continuing Guarantors) of 2.0x the sum of: (i) the committed facility size and
(ii) all outstanding indebtedness (including, without duplication, guarantees of such indebtedness) for borrowed money (excluding subordinated
intercompany indebtedness) of the Continuing Guarantors, tested monthly and upon certain dispositions or encumbrances of eligible assets of the
Continuing Guarantors.
The Revolving Credit Facility is also subject to a $6 billion
minimum consolidated net worth covenant, tested quarterly, and limits the Company’s ability to create liens, merge or consolidate, sell, transfer,
lease or dispose of all or substantially all of its assets, grant a negative pledge or make certain restricted payments during the occurrence and
continuance of an event of default.
Item 1: Consolidated Financial Statements
21
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Series C Notes
Series C Notes 4.75% & 5.50% – In February 2012, the Company issued at par $3.25 billion aggregate principal amount of Series
C Notes, consisting of $1.5 billion principal amount of three-year 4.75% fixed rate notes due 2015 (the “2015 Notes”) and $1.75 billion
principal amount of seven-year 5.50% fixed rate notes due 2019 (the “2019 Notes,” together with the 2015 Notes, the “Notes”). The
proceeds of the transaction were used, in conjunction with available cash, to redeem the remaining Series A Notes in March 2012. Series C Notes 5.25% & 6.625% – In March 2011, the Company issued $2 billion of new Series C Notes, consisting of $1.3 billion
of three-year 5.25% fixed rate notes and $700 million of seven-year 6.625% fixed rate notes. The proceeds of the transaction were used in May 2011, in
conjunction with available cash, to redeem $2.5 billion of 7% Series A Notes. Series C Notes 7% (Exchanged) – In June 2011, the Company successfully completed an Exchange Offer and Consent Solicitation for
outstanding 7% Series A Notes maturing in 2015, 2016 and 2017. At the Offer Expiration, tenders with consents or separate consents were received from
holders of approximately $10.9 billion in aggregate principal amount of Series A Notes, made up of $8.76 billion (pre-FSA) of Series A Notes tendered
and accepted for exchange, and $2.17 billion of Series A Notes separately consented, including a majority of each maturity of these Series A Notes. As
a result, $8.76 billion principal amount of Series C Notes (pre-FSA) with the same interest rate and interest payment dates, but maturing one business
day later than the Series A Notes for which they were exchanged, were issued in exchange for the Series A Notes tendered and
accepted. During the second quarter of 2012, CIT redeemed at par approximately $2.5 billion of 7% Series C Notes maturing in 2017 and $1.6 billion
maturing in 2015. During May and June 2012, CIT repurchased $140 million in aggregate of 7% Series C Notes maturing in 2016 and 2017 at a slight
discount. These redemptions and repurchases resulted in the acceleration of $265 million of FSA discount accretion that was recorded as additional
interest expense and a loss on debt extinguishment of $21 million. Once the Company’s remaining Series A Notes were redeemed during the 2012 first quarter, all the collateral and subsidiary guarantees
under the Series C Notes were released and the notes became senior unsecured obligations. The Series C Notes Indentures limit the Company’s ability to create liens, merge or consolidate, or sell, transfer, lease or dispose of
all or substantially all of its assets. Upon a Change of Control Triggering Event as defined in the Series C Indentures, holders of the Series C Notes
will have the right to require the Company, as applicable, to repurchase all or a portion of the Series C Notes at a purchase price equal to 101% of
the principal amount, plus accrued and unpaid interest to the date of such repurchase. See Note 15 – Subsequent Events regarding details on
2012 third quarter Series C Notes redemptions.
Senior Unsecured
In March 2012, CIT filed a “shelf” registration statement and issued at par $1.5 billion of senior unsecured notes that mature in
2018 and bear interest at a rate of 5.25%. These senior unsecured notes rank equal in right of payment with the Series C Notes and the Revolving Credit
Facility. The proceeds of the transaction were used in conjunction with available cash, to redeem $1.6 billion of 7% Series C Notes in April
2012. On May 4, 2012, CIT issued at par $1.25 billion of senior unsecured notes that mature in 2017 and bear interest at a rate of 5.00% and $750
million of senior unsecured notes that mature in 2020 and bear interest at a rate of 5.375%. These senior unsecured notes rank equal in right of
payment with the Series C Notes and the Revolving Credit Facility. The proceeds of the transaction were used in conjunction with available cash, to
redeem $2.0 billion of 7% Series C Notes in June 2012. See Note 15 – Subsequent Events regarding details on 2012 third quarter Senior Unsecured issuance. Secured
Series A Notes On December 10, 2009, pursuant to the Plan of Reorganization the Company issued $21.04 billion principal amount of its 7.0% Series A
Second-Priority Secured Notes with maturities each year from 2013 to 2017 (the “Series A Notes”). During the first quarter 2012, CIT redeemed the remaining $6.5 billion of Series A Notes, which resulted in the acceleration of $597 million
of FSA discount accretion that was recorded as additional interest expense and a loss on debt extinguishments of $23 million reflecting a portion of
the underwriting fees on the issuance of $3.25 billion of Series C Notes in February 2012. The elimination of our remaining Series A Notes resulted in
all of CIT’s Series C Notes and the Revolving Credit Facility becoming unsecured. Secured Borrowings
Set forth below are borrowings and pledged assets primarily owned by consolidated variable interest entities. Creditors of these entities
received ownership and/or security interests in the assets. These entities are intended to be bankruptcy remote so that such assets are not available
to creditors of CIT or any affiliates of CIT until and unless the related secured borrowings have been fully discharged. These transactions do not meet
accounting requirements for sales treatment and are recorded as secured borrowings. Except as otherwise noted, pledged assets listed in the following
table as of December 31, 2011 were not included in the collateral available to lenders under the Revolving Credit Facility or the Series A or C Notes
described above. As of June 30, 2012, the Revolving Credit Facility and Series C Notes were unsecured and all the Series A Notes had been paid off in
full. 22 CIT GROUP INC
CIT GROUP INC. AND SUBSIDIARIES – NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Secured Borrowings and Pledged Assets Summary (dollars in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||