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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    Form 10-Q

                                   ----------

|X|   QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003

                                       OR

|_|   TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
      EXCHANGE ACT OF 1934

                        Commission File Number: 001-31369

                                   ----------

                                 CIT Group Inc.
             (Exact name of Registrant as specified in its charter)

                Delaware                                    65-1051192
    (State or other jurisdiction of                        (IRS Employer
     incorporation or organization)                    Identification Number)

                   1 CIT Drive, Livingston, New Jersey, 07039
             (Address of Registrant's principal executive offices)

                 (973) 740-5000 (Registrant's telephone number)

              (Former name, former address and former fiscal year,
                          if changed since last report)

      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 is an  accelerated  filer as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes |X| No |_|

      As of July 31, 2003,  there were  211,634,107  shares of the  Registrant's
common stock outstanding.

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                        CIT GROUP INC. AND SUBSIDIARIES
                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                         Part I--Financial Information:

Item 1 Consolidated Financial Statements (Unaudited)......................   1
       Consolidated Balance Sheets........................................   1
       Consolidated Statements of Income..................................   2
       Consolidated Statements of Stockholders' Equity....................   3
       Consolidated Statements of Cash Flows..............................   4
       Notes to Consolidated Financial Statements.........................  5-18
Item 2 Management's Discussion and Analysis of Financial Condition
         and Results of Operations and Quantitative and
         Qualitative Disclosure about Market Risk......................... 19-51
Item 4 Controls and Procedures............................................  51

                      Part II--Other Information:

Item 1 Legal Proceedings..................................................  52
Item 4 Submission of Matters to a Vote of Security Holders................  52
Item 6 Exhibits and Reports on Form 8-K...................................  53
       Signatures.........................................................  54


                                        i



                          PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

                         CIT GROUP INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (Unaudited)
                       ($ in millions, except share data)

                                                          June 30,  December 31,
                                                            2003        2002
                                                         ---------  ------------
                                     ASSETS

Financing and leasing assets:
   Finance receivables ...............................   $28,413.6    $27,621.3
   Reserve for credit losses .........................      (754.9)      (760.8)
                                                         ---------    ---------
   Net finance receivables ...........................    27,658.7     26,860.5
   Operating lease equipment, net ....................     7,560.0      6,704.6
   Finance receivables held for sale .................     1,210.0      1,213.4
Cash and cash equivalents ............................     1,423.3      2,036.6
Goodwill, net ........................................       389.8        384.4
Other assets .........................................     4,942.9      4,732.9
                                                         ---------    ---------
Total Assets .........................................   $43,184.7    $41,932.4
                                                         =========    =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Debt:
   Commercial paper ..................................   $ 4,576.7    $ 4,974.6
   Variable-rate bank credit facilities ..............          --      2,118.0
   Variable-rate senior notes ........................     6,637.3      4,906.9
   Fixed-rate senior notes ...........................    21,216.8     19,681.8
                                                         ---------    ---------
Total debt ...........................................    32,430.8     31,681.3
Credit balances of factoring clients .................     2,471.6      2,270.0
Accrued liabilities and payables .....................     2,968.3      2,853.2
                                                         ---------    ---------
   Total Liabilities .................................    37,870.7     36,804.5
                                                         ---------    ---------
Commitments and Contingencies (Note 8)
Company-obligated mandatorily redeemable
   preferred securities of subsidiary
   trust holding solely debentures of the Company ....       256.4        257.2
Stockholders' Equity:
   Preferred stock, $0.01 par value,
     100,000,000 authorized; none issued .............          --           --
   Common stock, $0.01 par value, 600,000,000
     authorized; 211,634,107 issued and
     outstanding .....................................         2.1          2.1
   Paid-in capital, net of deferred compensation
     of $3.7 and $5.5 ................................    10,677.8     10,676.2
   Accumulated deficit ...............................    (5,393.8)    (5,606.9)
   Accumulated other comprehensive loss ..............      (228.5)      (200.7)
                                                         ---------    ---------
   Total Stockholders' Equity ........................     5,057.6      4,870.7
                                                         ---------    ---------
   Total Liabilities and Stockholders' Equity ........   $43,184.7    $41,932.4
                                                         =========    =========

           See Notes to Consolidated Financial Statements (Unaudited).


                                       1


                         CIT GROUP INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
                     ($ in millions, except per share data)



                                                         For the Quarter            For the Six Months
                                                          Ended June 30,              Ended June 30,
                                                         ----------------           ------------------
                                                         2003        2002           2003          2002
                                                         ----        ----           ----          ----
                                                                                   
Finance income .....................................    $943.2     $ 1,021.9       $1,882.4    $ 2,128.6
Interest expense ...................................     331.1         370.2          677.8        718.5
                                                        ------     ---------       --------    ---------
Net finance income .................................     612.1         651.7        1,204.6      1,410.1
Depreciation on operating lease equipment ..........     272.9         295.7          551.7        605.9
                                                        ------     ---------       --------    ---------
Net finance margin .................................     339.2         356.0          652.9        804.2
Provision for credit losses ........................     100.6         357.7          203.6        552.7
                                                        ------     ---------       --------    ---------
Net finance margin after provision for
   credit losses ...................................     238.6          (1.7)         449.3        251.5
Other revenue ......................................     217.6         246.1          453.1        478.2
                                                        ------     ---------       --------    ---------
Operating margin ...................................     456.2         244.4          902.4        729.7
                                                        ------     ---------       --------    ---------
Salaries and general operating expenses ............     227.4         237.9          461.0        472.1
Interest expense - TCH .............................        --         281.3             --        586.3
Goodwill impairment ................................        --       1,999.0             --      6,511.7
                                                        ------     ---------       --------    ---------
Operating expenses .................................     227.4       2,518.2          461.0      7,570.1
                                                        ------     ---------       --------    ---------
Income (loss) before provision for income taxes ....     228.8      (2,273.8)         441.4     (6,840.4)
(Provision) for income taxes .......................     (89.2)       (121.3)        (172.1)      (171.7)
Minority interest in subsidiary trust holding solely
   debentures of the Company, after tax ............      (2.7)         (2.7)          (5.4)        (5.4)
                                                        ------     ---------       --------    ---------
Net income (loss) ..................................    $136.9     $(2,397.8)      $  263.9    $(7,017.5)
                                                        ======     =========       ========    =========
Net income (loss) per basic share ..................    $ 0.65     $  (11.33)      $   1.25    $  (33.17)
                                                        ======     =========       ========    =========
Net income (loss) per diluted share ................    $ 0.65     $  (11.33)      $   1.24    $  (33.17)
                                                        ======     =========       ========    =========
Dividends per common share .........................    $ 0.12     $      --       $   0.24    $      --
                                                        ======     =========       ========    =========


Note: Per share  calculations for the quarter and six months ended June 30, 2002
assume that common shares as a result of the July 2002 IPO (211.6  million) were
outstanding during those time periods.

           See Notes to Consolidated Financial Statements (Unaudited).


                                       2


                         CIT GROUP INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
                                 ($ in millions)



                                                                                  Accumulated
                                                                                     Other           Total
                                              Common     Paid-in    Accumulated  Comprehensive   Stockholders'
                                               Stock     Capital      Deficit        (Loss)          Equity
                                              ------     -------    -----------  -------------   --------------

                                                                                     
December 31, 2002 ..........................    $2.1    $10,676.2    $(5,606.9)      $(200.7)       $4,870.7
Net income .................................      --           --        127.0            --           127.0
Foreign currency translation adjustments ...      --           --           --           9.0             9.0
Unrealized loss on equity and securitization
  investments ..............................      --           --           --         (11.2)          (11.2)
Change in fair values of derivatives
  qualifying as cash flow hedges ...........      --           --           --          25.7            25.7
                                                                                                    --------
Total comprehensive income .................      --           --           --            --           150.5
                                                                                                    --------
Cash dividends .............................      --           --        (25.4)           --           (25.4)
Restricted common stock grants .............      --          0.8           --            --             0.8
                                                ----    ---------    ---------       -------        --------
March 31, 2003 .............................     2.1     10,677.0     (5,505.3)       (177.2)        4,996.6
                                                ----    ---------    ---------       -------        --------
Net income .................................      --           --        136.9            --           136.9
Foreign currency translation adjustments ...      --           --           --         (22.8)          (22.8)
Unrealized gain on equity and securitization
  investments ..............................      --           --           --           2.8             2.8
Minimum pension liability adjustment .......      --           --           --          (1.8)           (1.8)
Change in fair values of derivatives
  qualifying as cash flow hedges ...........      --           --           --         (29.5)          (29.5)
                                                                                                    --------
Total comprehensive income .................      --           --           --            --            85.6
                                                                                                    --------
Cash dividends .............................      --           --        (25.4)           --           (25.4)
Restricted common stock grants .............      --          0.8           --            --             0.8
                                                ----    ---------    ---------       -------        --------
June 30, 2003 ..............................    $2.1    $10,677.8    $(5,393.8)      $(228.5)       $5,057.6
                                                ====    =========    =========       =======        ========


           See Notes to Consolidated Financial Statements (Unaudited).


                                      3


                         CIT GROUP INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
                                 ($ in millions)

                                                           For the Six Months
                                                             Ended June 30,
                                                           ------------------
                                                           2003          2002
                                                           ----          ----
Cash Flows From Operations
Net income (loss) ..................................    $   263.9     $(7,017.5)
Adjustments to reconcile net income (loss)
   to net cash flows from operations:
   Goodwill impairment .............................           --       6,511.7
   Provision for credit losses .....................        203.6         552.7
   Depreciation and amortization ...................        569.7         625.8
   Provision for deferred federal
     income taxes ..................................        150.3          92.8
   Gains on equipment, receivable
     and investment sales ..........................       (119.3)       (128.8)
   Increase in other assets ........................       (201.8)       (181.4)
   Increase (decrease) in accrued
     liabilities and payables ......................          9.5        (269.6)
   Other ...........................................        (19.2)         (6.3)
                                                        ---------     ---------
Net cash flows provided by operations ..............        856.7         179.4
                                                        ---------     ---------
Cash Flows From Investing Activities
Loans extended .....................................    (25,040.9)    (23,435.1)
Collections on loans ...............................     21,180.1      20,488.8
Proceeds from asset and receivable sales ...........      3,859.9       6,753.2
Purchases of assets to be leased ...................     (1,355.0)     (1,028.2)
Net decrease in short-term factoring receivables ...       (205.9)     (1,272.2)
Purchase of finance receivable portfolios ..........       (534.4)        (26.0)
Purchase of investment securities ..................         (6.6)       (109.3)
Other ..............................................        (41.2)          4.3
                                                        ---------     ---------
Net cash flows (used for) provided by
   investing activities ............................     (2,144.0)      1,375.5
                                                        ---------     ---------
Cash Flows From Financing Activities
Proceeds from the issuance of variable
   and fixed-rate notes ............................      6,192.8      11,018.4
Repayments of variable and fixed-rate notes ........     (5,045.4)     (4,415.3)
Net decrease in commercial paper ...................       (397.9)     (7,982.1)
Net capitalization from Tyco
   and Tyco affiliates .............................           --         672.7
Net repayments of non-recourse
   leveraged lease debt ............................        (71.0)       (119.3)
Cash dividends paid ................................        (50.8)           --
                                                        ---------     ---------
Net cash flows provided by (used for)
   financing activities ............................        627.7        (825.6)
                                                        ---------     ---------
Net (decrease) increase in cash
   and cash equivalents ............................       (659.6)        729.3
Exchange rate impact on cash .......................         46.3          49.8
Cash and cash equivalents,
   beginning of period .............................      2,036.6       1,301.5
                                                        ---------     ---------
Cash and cash equivalents,
   end of period ...................................    $ 1,423.3     $ 2,080.6
                                                        =========     =========
Supplementary Cash Flow Disclosure
Interest paid ......................................    $   811.5     $   861.1
Federal, foreign, state and local
   income taxes paid, net ..........................    $    40.6     $    46.2

           See Notes to Consolidated Financial Statements (Unaudited).


                                      4


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 -- Summary of Significant Accounting Policies

      CIT Group Inc., a Delaware corporation ("we," "CIT" or the "Company"),  is
a leading global source of financing and leasing capital for companies in a wide
variety of industries, including many of today's leading industries and emerging
businesses,  offering vendor, equipment,  commercial,  factoring,  consumer, and
structured financing capabilities. 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  three-month  transition  period ended  December 31,
2002.  These  financial   statements  have  not  been  examined  by  independent
accountants in accordance with generally accepted auditing standards, 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   period  amounts  have  been
reclassified to conform to the current presentation.

      On June 1, 2001,  The CIT  Group,  Inc.  was  acquired  by a  wholly-owned
subsidiary  of  Tyco  International  Ltd.  ("Tyco"),   in  a  purchase  business
combination recorded under the "push-down" method of accounting,  resulting in a
new basis of accounting for the  "successor"  period  beginning June 2, 2001. On
July 8, 2002, Tyco completed a sale of 100% of CIT's outstanding common stock in
an initial public offering ("IPO").  Immediately prior to the offering,  CIT was
merged with its parent Tyco Capital  Holding,  Inc.  ("TCH"),  a company used to
acquire CIT. As a result,  the historical  financial results of TCH are included
in the historical consolidated CIT financial statements.

      CIT  consolidates  entities in which it owns or  controls  more than fifty
percent of the voting shares. Entities that are twenty to fifty percent owned by
CIT are included in other assets and  presented  at the  corresponding  share of
equity  plus loans and  advances.  Entities  in which CIT owns less than  twenty
percent of the voting  shares,  and over which the  Company  has no  significant
influence, are included in other assets at cost, less declines in value that are
other than  temporary.  In  accordance  with  Statement of Financial  Accounting
Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing of Financial
Assets and  Extinguishment of Liabilities",  Qualifying Special Purpose Entities
utilized in securitizations  are not consolidated.  Interests in securitizations
are included in other assets.  All significant  inter-company  transactions have
been eliminated.

      The Company adopted FASB  Interpretation No. 46 ("FIN 46")  "Consolidation
of Variable Interest Entities" ("VIEs") on July 1, 2003 for VIEs existing before
February  1,  2003.  FIN  46  addresses  the  identification  of a VIE  and  the
consolidation  of a VIE's  assets,  liabilities  and results of  operations in a
company's  financial  statements.  VIEs are  certain  entities  in which  equity
investors do not have the characteristics of a controlling financial interest or
do not have  sufficient  equity at risk for the entity to finance its activities
without  additional  subordinated  financial support from other parties.  FIN 46
requires the  consolidation of a VIE by its primary  beneficiary if the VIE does
not effectively distribute the economic risks and rewards of ownership among the
parties involved. The primary beneficiary is the entity that has the majority of
the economic  risks and rewards of  ownership of the VIE.  VIEs for which CIT is
the  primary  beneficiary  will  be  consolidated  in  the  Company's  financial
statements  effective  July 1, 2003. On February 1, 2003, CIT adopted FIN 46 for
VIEs acquired after January 31, 2003.

      The FIN 46 potential impact to CIT is primarily  related to three types of
transactions:  1) strategic vendor partner joint ventures,  2)  securitizations,
and  3)  selected   financing  and  private   equity   transactions.   Based  on
interpretations of FIN 46 currently available,  we believe the implementation of
this  standard does not change the current  equity method of accounting  for our
strategic   vendor   partner  joint   ventures  (see  Note  7  -  Related  Party
Transactions).  Securitization  transactions  outstanding at June 30, 2003 would
qualify as off-balance  sheet  transactions.  The Company may structure  certain
future   securitization   transactions,   including   factoring   trade  account
receivables transactions, as on-balance sheet financings.  Certain VIEs acquired
primarily  in  conjunction   with  selected   financing  and/or  private  equity
transactions  will be  consolidated  under FIN 46.  The  consolidation  of these
entities will not have a significant impact on the Company's  financial position
or results of operations. Due to the complexity of the new guidance and evolving
interpretations among accounting  professionals,  the Company will consider such
further guidance, if any, and assess the accounting and disclosure impact of FIN
46 on its VIEs.


                                       5


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      For  guarantees  issued or  modified  subsequent  to  December  31,  2002,
liabilities  are  recognized  at the  estimated  fair  value  of the  obligation
undertaken at the inception of the guarantee.

      CIT has elected to apply Accounting Principles Board Opinion 25 ("APB 25")
rather than the optional  provisions of SFAS 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):

                                                       Six Months Ended June 30,
                                                       -------------------------
                                                         2003            2002
                                                         ----            ----
Net income (loss) as reported ...................       $263.9        $(7,017.5)
Stock-based compensation expense --
  fair value method, after tax ..................         11.7               --
                                                        ------        ---------
Pro forma net income (loss) .....................       $252.2        $(7,017.5)
                                                        ======        =========
Basic earnings per share as reported ............       $ 1.25        $  (33.17)
                                                        ======        =========
Basic earnings per share pro forma ..............       $ 1.19        $  (33.17)
                                                        ======        =========
Diluted earnings per share as reported ..........       $ 1.24        $  (33.17)
                                                        ======        =========
Diluted earnings per share pro forma ............       $ 1.19        $  (33.17)
                                                        ======        =========

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  19.0
million and 18.2  million  shares for the quarter and six months  ended June 30,
2003.

      The reconciliation of the numerator and denominator of basic EPS with that
of diluted EPS is  presented  for the quarter and six months ended June 30, 2003
and 2002. The  denominator for the quarter and six months ended June 30, 2002 is
the number of shares upon completion of the July 2002 IPO ($ in millions, except
per share amounts, which are in whole dollars; share balances in thousands):



                                 Income      Shares      Per Share        (Loss)       Shares       Per Share
                              (Numerator) (Denominator)    Amount       (Numerator) (Denominator)     Amount
                              ----------- -------------  ---------      ----------- -------------   ---------
                                   Quarter Ended June 30, 2003               Quarter Ended June 30, 2002
                              ------------------------------------      -------------------------------------
                                                                                   
Basic EPS:
   Income available to common
     stockholders ............   $136.9      211,588        $0.65        $(2,397.8)     211,573      $(11.33)
Effect of Dilutive Securities:
   Restricted shares .........       --          456           --              --            --           --
   Stock options .............       --           22           --              --            --           --
                                 ------      -------        -----        ---------      -------      -------
Diluted EPS ..................   $136.9      212,066        $0.65        $(2,397.8)     211,573      $(11.33)
                                 ======      =======        =====        =========      =======      =======

                                  Six Months Ended June 30, 2003            Six Months Ended June 30, 2002
                              ------------------------------------      -------------------------------------
Basic EPS:
   Income available to common
     stockholders ............   $263.9      211,581        $1.25        $(7,017.5)     211,573      $(33.17)
Effect of Dilutive Securities:
   Restricted shares .........                   383           --              --            --           --
   Stock options .............       --           11           --              --            --           --
                                 ------      -------        -----        ---------      -------      -------
Diluted EPS ..................   $263.9      211,975        $1.24        $(7,017.5)     211,573      $(33.17)
                                 ======      =======        =====        =========      =======      =======


                                       6


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 3 -- Derivative Financial Instruments

      The components of the adjustment to Accumulated Other  Comprehensive  Loss
for  derivatives  qualifying as hedges of future cash flows at December 31, 2002
and at June 30, 2003 are presented in the following table ($ in millions):

                                       Adjustment of
                                       Fair Value of  Income Tax  Net Unrealized
                                        Derivatives     Effects        Loss
                                       -------------  ----------  --------------
Balance at December 31, 2002 ........     $(190.8)      $(72.5)    $(118.3)
Changes in values of derivatives
  qualifying as cash flow hedges ....        (6.2)        (2.4)       (3.8)
                                          -------       ------     -------
Balance at June 30, 2003 ............     $(197.0)      $(74.9)    $(122.1)
                                          =======       ======     =======

      The unrealized loss as of June 30, 2003, presented in the preceding table,
primarily reflects our use of interest rate swaps to convert  variable-rate debt
to fixed-rate  debt, and lower market  interest  rates.  For the quarter and six
months ended June 30, 2003, the ineffective portion of changes in the fair value
of cash flow hedges amounted to $0.1 million and $0.5 million, respectively, and
has been  recorded as an increase  to  interest  expense.  Assuming no change in
interest rates,  $52.0 million,  net of tax, of Accumulated Other  Comprehensive
Loss is expected to be  reclassified  to earnings over the next twelve months as
contractual  cash payments are made. The Accumulated  Other  Comprehensive  Loss
(along  with the  corresponding  swap  liability)  will be  adjusted  as  market
interest rates change over the remaining life of the swaps.

      As part of managing the exposure to changes in market interest rates, CIT,
as an end-user,  enters into various interest rate swap transactions,  which are
transacted in over-the-counter  markets with other financial institutions acting
as principal counter-parties.  We use derivatives for hedging purposes only, and
do not enter into  derivative  financial  instruments for trading or speculative
purposes.  To  ensure  both  appropriate  use as a hedge  and  hedge  accounting
treatment,  derivatives  entered  into  are  designated  according  to  a  hedge
objective  against  a  specific  liability,  including  commercial  paper  or  a
specifically  underwritten debt issue. The notional amounts,  rates, indices and
maturities of our derivatives are required to closely match the related terms of
our hedged  liabilities.  CIT exchanges  variable-rate  interest on certain debt
instruments for fixed-rate amounts.  These interest rate swaps are designated as
cash flow hedges.  We also exchange  fixed-rate  interest on certain of our debt
for  variable-rate  amounts.  These  interest rate swaps are  designated as fair
value hedges.

      The following  table presents the notional  principal  amounts of interest
rate swaps by class and the corresponding  hedged liability position at June 30,
2003 ($ in millions):



                                                    Notional Amount
                                            --------------------------------
Interest Rate Swaps                         June 30, 2003   December 31, 2002                        Comments
-------------------                         -------------   -----------------                        --------
                                                                             
Floating to fixed-rate swaps --                                                       Effectively converts the interest
  cash flow hedges.....................       $2,637.0           $3,280.5             rate on an equivalent amount
                                                                                      of commercial paper and variable-rate
                                                                                      notes to a fixed rate.

Fixed to floating-rate swaps --                                                       Effectively converts the interest
  fair value hedges....................        6,521.3            4,489.8             rate on an equivalent amount of
                                              --------           --------             fixed-rate notes to a variable rate.
Total interest rate swaps .............       $9,158.3           $7,770.3
                                              ========           ========


      CIT also utilizes trusts as part of its ongoing  securitization  programs.
As part of these related activities,  the Company enters into hedge transactions
with the trusts in order to protect the trusts  against  interest rate risk. CIT
insulates its associated  risk by entering into  substantially  offsetting  swap
transactions with third parties. The net effect is to protect the trusts and CIT
from interest rate risk. The notional  amount of these swaps was $3.5 billion at
June 30, 2003.

      CIT also utilizes  foreign currency  exchange  forward  contracts to hedge
currency risk  underlying its net  investments  in foreign  operations and cross
currency  interest  rate swaps to hedge both foreign  currency and interest rate
risk  underlying  foreign  debt.  At June 30,  2003,  CIT was  party to  foreign
currency  exchange forward contracts with notional amounts totaling $2.4 billion
and  maturities  ranging from 2003 to 2006. CIT was also party to cross currency
interest rate swaps with notional  amounts  totaling $1.4 billion and maturities
ranging from 2003 to 2027.


                                       7


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 4 -- Business Segment Information

      The  current  and prior  period  segment  reporting  has been  modified to
reflect Equipment Finance and Capital Finance as separate segments.  Previously,
these two strategic business units were combined as the Equipment  Financing and
Leasing segment. This presentation is intended to facilitate the analysis of the
Company's results for users of the financial statements.

      The selected financial  information by business segment presented below is
based upon a fixed  leverage  ratio across  business units and the allocation of
most corporate expenses. The business segments' operating margins and net income
for the six months ended June 30, 2003 include the  allocation  (from  Corporate
and Other) of additional  borrowing  costs stemming from the 2002  disruption to
the  Company's  funding base and enhanced  liquidity  levels.  These  additional
borrowing and liquidity costs have had a greater impact in 2003 than in 2002 and
were included in Corporate and Other in 2002.  Corporate and Other also included
the 2002 non-cash goodwill impairment charge.

      During  the  quarter  ended  March  31,  2003,  in order to  better  align
competencies,  we transferred certain small business loans and leases, including
the small  business  lending  unit,  totaling  $1,078.6  million from  Equipment
Finance to Specialty Finance. Prior periods have not been restated to conform to
this current presentation ($ in millions).



                                                                                                   Corporate
                                  Specialty  Equipment   Capital  Commercial Structured   Total       and
                                   Finance    Finance    Finance   Finance    Finance    Segments    Other     Consolidated
                                  ---------  ---------   -------  ---------- ----------  --------  ---------   ------------
                                                                                         
For the quarter ended
  June 30, 2003
Operating margin .............   $   204.4   $    35.8   $   32.2  $  131.3  $   31.6   $   435.3   $    20.9    $   456.2
Income taxes .................        40.2         5.1        5.7      35.5       9.3        95.8        (6.6)        89.2
Operating earnings (loss) ....        63.0         7.9        9.1      55.6      14.7       150.3       (13.4)       136.9

At or for the six months ended
  June 30, 2003
Operating margin .............   $   394.9   $    76.0   $   61.1  $  261.2  $   59.9   $   853.1   $    49.3    $   902.4
Income taxes .................        73.6        11.9       10.6      70.1      17.1       183.3       (11.2)       172.1
Operating earnings (loss) ....       115.2        18.6       16.8     109.7      26.9       287.2       (23.3)       263.9
Total financing and leasing
  assets .....................    11,600.8     6,711.0    6,968.4   8,913.4   3,315.4    37,509.0          --     37,509.0
Total managed assets .........    18,137.4    10,530.9    6,968.4   8,913.4   3,315.4    47,865.5          --     47,865.5

For the quarter ended
  June 30, 2002
Operating margin .............   $   220.0   $    97.8   $   45.7  $  114.8  $   33.1   $   511.4   $  (267.0)   $   244.4
Income taxes .................        51.5        18.7        9.1      30.1      10.7       120.1         1.2        121.3
Operating earnings (loss) ....        83.8        31.7       22.8      46.0      15.3       199.6    (2,597.4)    (2,397.8)

At or for the six months ended
  June 30, 2002
Operating margin .............   $   476.1   $   204.3   $   88.7  $  229.8  $   66.4   $ 1,065.3   $  (335.6)   $   729.7
Income taxes .................       112.7        43.4       16.3      60.9      19.9       253.2       (81.5)       171.7
Operating earnings (loss) ....       183.8        72.1       45.0      92.2      31.7       424.8    (7,442.3)    (7,017.5)
Total financing and
  leasing assets .............    10,009.7     8,706.8    5,792.6   8,180.5   3,018.8    35,708.4          --     35,708.4
Total managed assets .........    17,319.4    13,365.0    5,792.6   8,180.5   3,018.8    47,676.3          --     47,676.3


                                       8


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 5 -- Concentrations

      The following  table presents the geographic and industry  compositions of
financing and leasing  portfolio  assets,  based on the location and industry of
the customer, at June 30, 2003 and December 31, 2002 ($ in millions):



                                                    At June 30, 2003    At December 31, 2002
                                                    ----------------    --------------------
                                                    Amount    Percent    Amount     Percent
                                                    ------    -------   --------   ---------
                                                                         
North America:
  Northeast ....................................   $ 7,576.9    20.2%   $ 7,833.8    21.8%
  West .........................................     6,978.5    18.6%     6,223.8    17.4%
  Midwest ......................................     5,741.3    15.3%     5,748.3    16.0%
  Southeast ....................................     5,168.9    13.8%     4,946.8    13.8%
  Southwest ....................................     4,076.9    10.9%     3,691.9    10.3%
  Canada .......................................     1,907.7     5.1%     1,804.9     5.0%
                                                   ---------   -----    ---------   -----
Total North America ............................    31,450.2    83.9%    30,249.5    84.3%
Other foreign ..................................     6,058.8    16.1%     5,625.2    15.7%
                                                   ---------   -----    ---------   -----
  Total ........................................   $37,509.0   100.0%   $35,874.7   100.0%
                                                   =========   =====    =========   =====

                                                    At June 30, 2003    At December 31, 2002
                                                    -----------------   --------------------
                                                    Amount    Percent    Amount     Percent
                                                    ------    -------   --------   ---------
Manufacturing(1) (no industry
  greater than 3.2%) ...........................   $ 7,590.8    20.3% $   7,114.3    19.8%
Commercial Airlines ............................     4,831.5    12.9%     4,570.3    12.7%
Retail(2) ......................................     4,144.5    11.0%     4,053.6    11.3%
Transportation(3) ..............................     2,989.5     8.0%     2,703.9     7.5%
Service industries .............................     2,520.3     6.7%     1,571.1     4.4%
Consumer based lending-- non-real estate(4) ....     2,087.9     5.6%     2,435.0     6.8%
Consumer based lending-- home mortgage .........     1,897.1     5.1%     1,292.7     3.6%
Construction equipment .........................     1,620.8     4.3%     1,712.7     4.8%
Communications(5) ..............................     1,432.2     3.8%     1,662.6     4.6%
Wholesaling ....................................     1,316.6     3.5%     1,305.2     3.6%
Automotive services ............................     1,105.6     2.9%     1,138.8     3.2%
Other (no industry greater than 3.0%)(6) .......     5,972.2    15.9%     6,314.5    17.7%
                                                   ---------   -----    ---------   -----
  Total ........................................   $37,509.0   100.0%   $35,874.7   100.0%
                                                   =========   =====    =========   =====


--------------------------------------------------------------------------------
(1)   Includes  manufacturers of textiles and apparel,  industrial machinery and
      equipment, electrical and electronic equipment and other.

(2)   Includes retailers of apparel (4.3%) and general merchandise (3.3%).

(3)   Includes rail, over-the-road trucking and business aircraft.

(4)   Includes  receivables  from  consumers for products in various  industries
      such as manufactured housing,  recreational vehicles, marine and computers
      and related equipment.

(5)   Includes  $624.4 million and $685.8 million of  telecommunication  related
      assets at June 30, 2003 and December 31, 2002, respectively.

(6)   Included in "Other" above are financing and leasing  assets in the energy,
      power and utilities  sectors,  which totaled  $896.7  million,  or 2.4% of
      total  financing and leasing assets at June 30, 2003. This amount includes
      approximately  $585 million in project  financing and $262 million in rail
      cars on lease.


                                       9


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 6 -- Accumulated Other Comprehensive Loss

      The following table details the June 30, 2003 and December 31, 2002
components of accumulated other comprehensive loss, net of tax ($ in millions):

                                                    June 30,      December 31,
                                                      2003           2002
                                                    --------      ------------
Changes in fair values of derivatives
  qualifying as cash flow hedges ..............     $(122.1)       $(118.3)
Foreign currency translation
  adjustments .................................       (89.4)         (75.6)
Minimum pension liability adjustments .........       (22.3)         (20.5)
Unrealized gain on equity and
  securitization investments ..................         5.3           13.7
                                                    -------        -------
  Total accumulated other comprehensive loss ..     $(228.5)       $(200.7)
                                                    =======        =======

Note 7 -- Related Party Transactions

      CIT is a  partner  with  Dell  Computer  Corporation  ("De  ll")  in  Dell
Financial  Services L.P. ("DFS"), a joint venture that offers financ ing to Dell
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.  CIT  acquired  this  relationship  in
November  1999,  and the current  agreement  extends  until  October  2005.  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  back to DFS on  defaulted  contracts.  In  accordance  with the  joint
venture agreement,  net income generated by DFS as determined under U.S. GAAP is
allocated 70% to Dell and 30% to CIT,  after CIT has  recovered  any  cumulative
losses.  The DFS board of directors  voting  representation  is equally weighted
between  designees  of CIT and  Dell and an  independent  director.  Any  losses
generated by DFS as determined  under U.S. GAAP are allocated to CIT. DFS is not
consolidated  in CIT's June 30, 2003  financial  statements and is accounted for
under  the  equity  method.  At June 30,  2003,  financing  and  leasing  assets
originated by DFS and purchased by CIT (included in the CIT Consolidated Balance
Sheet) were $1.5 billion whereas  securitized  assets included in managed assets
were $1.9 billion. In addition to the owned and securitized assets acquired from
DFS,  CIT's  maximum  exposure to loss with respect to  activities  of the joint
venture  is  approximately  $273  million  pretax  at June  30,  2003,  which is
comprised of the investment in and loans to the joint venture.

      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  credit  recourse  on  defaulted  receivables.  CIT
acquired this  relationship in November 1999. The agreement with Snap-on extends
until January 2007. 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.  As of June 30, 2003,  the related  financing  and
leasing  assets and  securitized  assets  were $1.0  billion  and $0.1  billion,
respectively. In addition to the owned and securitized assets purchased from the
Snap-on joint venture, CIT's maximum exposure to loss with respect to activities
of the joint venture is approximately $15 million pretax at June 30, 2003, which
is comprised of the investment in and loans to the joint venture.

      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.  As of
June 30, 2003,  CIT's maximum exposure to loss with respect to activities of the
joint venture is $127 million  pretax,  which is comprised of the  investment in
and loans to the joint venture.

      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  November  1999,  and  others  were
subsequently  entered into in the normal  course of business.  At June 30, 2003,
other assets included $34.0 million of investments in non-consolidated  entities
relating to such  transactions  that are  accounted for under the equity or cost
methods. This investment is CIT's maximum exposure to loss with respect to these
interests as of June 30, 2003.


                                       10


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      As of  June  30,  2002,  certain  subsidiaries  of Tyco  sold  receivables
totaling $319.0 million to CIT in a factoring transaction.  CIT has continued to
purchase  receivables from Tyco in similar factoring  transactions  through June
30, 2003 on an arms-length basis.

      While CIT was an indirect  subsidiary of Tyco,  certain of CIT's expenses,
such as third party  consulting and legal fees,  were paid by Tyco and billed to
CIT. The payables were satisfied in conjunction with the July 2002 IPO.

Note 8 -- Commitments and Contingencies

      In the normal course of meeting the financing needs of its customers,  CIT
enters into various  credit-related  commitments,  including  standby letters of
credit, which 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.

      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.  The  receivables  are not  purchased  unless the
customer is unable to pay.

      As of June 30, 2003,  there were no outstanding  liabilities  for the fair
values relating to these  credit-related  commitments or guarantees,  as amounts
are generally billed and collected on a monthly basis.

      The   accompanying   table   summarizes   the   contractual   amounts   of
credit-related  commitments.   The  reduction  in  guarantees  outstanding  from
December  31,  2002  reflects  the  transition  to  on-balance  sheet  factoring
products,  which are included in credit balances of factoring clients in the CIT
consolidated balance sheet ($ in millions).



                                                                                                         At
                                                                                                    December 31,
                                                                      At June 30, 2003                  2002
                                                             -----------------------------------    ------------
                                                                  Due to Expire
                                                             ---------------------
                                                              Within        After        Total          Total
                                                             One Year     One Year    Outstanding    Outstanding
                                                             ---------    --------    -----------    -----------
                                                                                          
Unused commitments to extend credit:
  Financing and leasing assets..........................     $1,212.1     $2,819.9     $4,032.0       $3,618.9
Letters of credit and acceptances:
  Standby letters of credit.............................        511.0         16.3        527.3          519.8
  Other letters of credit...............................        625.0           --        625.0          583.3
  Acceptances...........................................         12.1           --         12.1            5.6
Guarantees..............................................         69.0           --         69.0          745.8
Venture capital fund and equity commitments.............          0.2        149.0        149.2          164.9



                                       11


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      As of June 30, 2003, commitments to purchase commercial aircraft from both
Airbus  Industrie  and The Boeing  Company  totaled 68 units  through 2007 at an
approximate value of $3.3 billion as detailed below ($ in billions):

Calendar Year:                                          Amount           Number
--------------                                          ------           ------
2003 ...................................                 $0.3                8
2004 ...................................                  0.8               16
2005 ...................................                  1.2               27
2006 ...................................                  0.9               16
2007 ...................................                  0.1                1
                                                         ----              ---
Total ..................................                 $3.3               68
                                                         ====              ===

      The order  amounts  are  based on  current  appraised  values in 2002 base
dollars and exclude CIT's options to purchase  additional  aircraft.  Six of the
2003 units and five of the 2004 units have lease commitments in place.

      Outstanding  commitments  to purchase  equipment,  other than the aircraft
detailed  above,  totaled $183.5  million at June 30, 2003. In addition,  CIT is
party to a railcar sale-leaseback transaction under which it is obligated to pay
a remaining total of $495 million,  including approximately $28 million per year
through 2010 and declining thereafter through 2024, which is expected to be more
than  offset by CIT's  re-lease  of the  assets,  contingent  on its  ability to
maintain railcar usage.

      CIT has guaranteed  the public and private debt  securities of a number of
its wholly-owned,  consolidated subsidiaries,  including those disclosed in Note
13 -- 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,
which  are  guaranteed  by  CIT  and  included  in  the  consolidated  financial
statements.  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.
In  addition,  CIT  has  guaranteed,   on  behalf  of  certain  non-consolidated
subsidiaries,  $9.5 million of third party debt,  which is not  reflected in the
consolidated balance sheet at June 30, 2003.

Note 9 -- Legal Proceedings

      On April 10, 2003, a putative class action lawsuit, asserting claims under
the Securities  Act of 1933,  was filed in the United States  District Court for
the Southern  District of New York against CIT, its Chief Executive  Officer and
its  Chief  Financial  Officer.   The  lawsuit  contains  allegations  that  the
registration  statement and prospectus prepared and filed in connection with the
IPO were  materially  false and  misleading,  principally  with  respect  to the
adequacy of CIT's telecommunications-related loan loss reserves at the time. The
lawsuit  purports to have been brought on behalf of all those who  purchased CIT
common  stock in or  traceable  to the  IPO,  and  seeks,  among  other  relief,
unspecified damages or rescission for those alleged class members who still hold
CIT stock and unspecified  damages for other alleged class members.  On June 25,
2003, by order of the United States District Court, the lawsuit was consolidated
with five other  substantially  similar suits, all of which had been filed after
April 10, 2003 and  Glickenhaus & Co., a privately  held  investment  firm,  was
named lead plaintiff. One such suit named as defendants some of the underwriters
and former directors of CIT. In addition to the foregoing,  two derivative suits
arising out of the same facts and  circumstances  have been brought  against CIT
and some of its present and former directors.

      CIT believes  that the  allegations  in each of these  actions are without
merit and that its disclosures were proper,  complete and accurate.  CIT intends
to vigorously defend itself against these actions.

      In addition,  in the ordinary course of business,  there are various legal
proceedings   pending  against  CIT.  Management  believes  that  the  aggregate
liabilities,  if any, arising from such actions, including the class action suit
above,  will not have a material  adverse effect on the  consolidated  financial
position, results of operations or liquidity of CIT.


                                       12

                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 10 -- Acquisition by Tyco

      The following table summarizes purchase accounting  liabilities  (pre-tax)
related to severance of employees and closing  facilities  that were recorded in
connection  with the  acquisition of CIT by Tyco, as well as utilization  during
the current quarter ($ in millions):



                                                      Severance            Facilities
                                                --------------------  ------------------
                                                Number of              Number of              Total
                                                Employees    Reserve  Facilities  Reserve    Reserves
                                                ---------    -------  ----------  -------    --------
                                                                                
Balance at December 31, 2002 .................     240        $17.2        22      $12.4       $29.6
Utilization - six months ended June 30, 2003..     (58)       (10.1)       (2)      (3.6)      (13.7)
                                                   ---        -----       ---      -----       -----
Balance at June 30, 2003 .....................     182        $ 7.1        20      $ 8.8       $15.9
                                                   ===        =====       ===      =====       =====


      The  reserves   remaining   at  June  30,  2003  relate   largely  to  the
restructuring of the European operations. The facility reserves relate primarily
to shortfalls in sublease  transactions  and will be utilized over the remaining
lease terms,  generally between 3 and 7 years.  Severance  reserves also include
amounts  payable  within  the next  year to  individuals  who  chose to  receive
payments on a periodic basis.

Note 11-- Consolidating Financial Statements -- Tyco Capital Holdings (TCH)

      The June 30, 2002 financial  statements include the activity of TCH, which
was a wholly owned  subsidiary of a Tyco  affiliate and was the holding  company
for the acquisition of CIT by Tyco. In its capacity as the  acquisition  holding
company,  TCH's activity  included an outstanding loan from and related interest
expense and prepayment  penalties  payable to an affiliate of Tyco.  Immediately
prior to the IPO of CIT on July 8, 2002, the prior activity of TCH  (accumulated
net deficit) was eliminated by means of a capital  contribution  from Tyco. As a
result,  the consolidated  financial  statements of CIT were not impacted by TCH
subsequent to June 30, 2002.



($in millions)                          For the Quarter Ended June 30, 2002  For the Six Months Ended June 30, 2002
--------------                          -----------------------------------  --------------------------------------
                                            CIT          TCH   Consolidated        CIT          TCH   Consolidated
                                            ---          ---   ------------        ---          ---   ------------
                                                                                      
Finance Income ......................   $ 1,021.9     $    --   $1,021.9         $2,128.6     $    --   $2,128.6
Interest expense ....................       370.2          --      370.2            718.5          --      718.5
                                        ---------     -------  ---------        ---------     -------  ---------
Net finance income ..................       651.7          --      651.7          1,410.1          --    1,410.1
Depreciation on operating lease
   equipment ........................       295.7          --      295.7            605.9          --      605.9
                                        ---------     -------  ---------        ---------     -------  ---------
Net finance margin ..................       356.0          --      356.0            804.2          --      804.2
Provision for credit losses .........       357.7          --      357.7            552.7          --      552.7
                                        ---------     -------  ---------        ---------     -------  ---------
Net finance margin after provision
   for credit losses ................        (1.7)         --       (1.7)           251.5          --      251.5
Other revenue .......................       246.1          --      246.1            478.2          --      478.2
                                        ---------     -------  ---------        ---------     -------  ---------
Operating margin ....................       244.4          --      244.4            729.7          --      729.7
                                        ---------     -------  ---------        ---------     -------  ---------
Salaries and general operating
    expenses ........................       230.4         7.5      237.9            457.3        14.8      472.1
Interest expense - TCH ..............          --       281.3      281.3               --       586.3      586.3
Goodwill impairment .................     1,999.0          --    1,999.0          6,511.7          --    6,511.7
                                        ---------     -------  ---------        ---------     -------  ---------
Operating expenses ..................     2,229.4       288.8    2,518.2          6,969.0       601.1    7,570.1
                                        ---------     -------  ---------        ---------     -------  ---------
(Loss) before provision for
   income taxes .....................    (1,985.0)     (288.8)  (2,273.8)        (6,239.3)     (601.1)  (6,840.4)
(Provision) for income taxes ........        (5.8)     (115.5)    (121.3)          (104.2)      (67.5)    (171.7)
Minority interest in subsidiary trust
   holding solely debentures of the
   Company, after tax ...............        (2.7)         --       (2.7)            (5.4)         --       (5.4)
                                        ---------     -------  ---------        ---------     -------  ---------
Net (loss) ..........................   $(1,993.5)    $(404.3) $(2,397.8)       $(6,348.9)    $(668.6) $(7,017.5)
                                        =========     =======  =========        =========     =======  =========



                                       13


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

Note 12 -- Accounting Change -- Goodwill

      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 for
impairment at least annually. As part of the adoption, the Company allocated its
existing  goodwill to each of its reporting  units as of October 1, 2001.  Under
the transition  provisions of SFAS 142,  there was no goodwill  impairment as of
October 1, 2001.

      During the quarter ended March 31, 2002, Tyco  experienced  disruptions to
its business  surrounding its announced break-up plan,  downgrades in its credit
ratings, and a significant decline in its market capitalization.  As a result of
these events at Tyco, CIT also experienced credit downgrades and a disruption to
our funding base and ability to access capital  markets.  Further,  market-based
information used in connection with our preliminary  consideration of an initial
public  offering for 100% of CIT  indicated  that CIT's book value  exceeded its
estimated fair value as of March 31, 2002. As a result,  management  performed a
Step 1 SFAS 142  impairment  analysis as of March 31, 2002 and concluded that an
impairment charge was warranted at that date.

      Management's  objective in performing  the Step 1 SFAS 142 analysis was to
obtain  relevant  market-based  data to  calculate  the  fair  value of each CIT
reporting  unit as of March 31, 2002 based on each  reporting  unit's  projected
earnings  and  market  factors  that  would be used by  market  participants  in
ascribing value to each of these  reporting  units in the planned  separation of
CIT from Tyco.  Management  obtained  relevant  market  data from our  financial
advisors regarding the range of price to earnings multiples and market discounts
applicable to each  reporting  unit as of March 31, 2002 and applied this market
data to the individual  reporting  unit's  projected annual earnings as of March
31, 2002 to calculate a fair value of each reporting  unit. The fair values were
compared to the corresponding carrying value of each reporting unit at March 31,
2002, resulting in a $4.513 billion impairment charge as of March 31, 2002.

      SFAS 142 requires a second step analysis  whenever the reporting unit book
value exceeds its fair value.  This  analysis  required us to determine the fair
value of each reporting unit's individual assets and liabilities to complete the
analysis of goodwill  impairment as of March 31, 2002.  During the quarter ended
June 30, 2002, we completed this analysis for each reporting unit and determined
that an  additional  Step 2 goodwill  impairment  charge of $132.0  million  was
required based on reporting unit level valuation data.

      Subsequent to March 31, 2002, CIT  experienced  further credit  downgrades
and the business  environment and other factors  continued to negatively  impact
the expected CIT IPO proceeds.  As a result,  management performed both a Step 1
and a Step 2 analysis as of June 30, 2002 in a manner  consistent with the March
2002 process  described above. This analysis was based upon market data from our
financial advisors regarding the individual  reporting units, and other relevant
market data at June 30, 2002 and through the period  immediately  following  the
IPO of the Company,  including the total amount of IPO  proceeds.  This analysis
resulted in Step 1 and Step 2 incremental  goodwill impairment charges of $1.719
billion  and  $148.0  million,  respectively,  as of June 30,  2002,  which were
recorded during the June 30, 2002 quarter.

      The changes in the  carrying  amount of goodwill  for the six months ended
June 30, 2003 were as follows ($ in millions):



                                      Specialty     Equipment      Capital    Commercial  Structured
                                       Finance       Finance       Finance      Finance     Finance     Total
                                      ---------     ---------      -------    ----------  ----------    -----
                                                                                     
Balance as of December 31, 2002 ....    $14.0          $ --          $ --        $370.4       $ --     $384.4
Goodwill related to rail acquisition       --            --           5.4            --         --        5.4
                                        -----          ----          ----        ------       ----     ------
Balance as of June 30, 2003 ........    $14.0          $ --          $5.4        $370.4       $ --     $389.8
                                        =====          ====          ====        ======       ====     ======


      The $5.4 million  increase to goodwill  during the quarter  ended June 30,
2003 relates to the  acquisition of an approximate  75% interest in Flex Leasing
Corporation  by Capital  Finance on April 8, 2003.  Flex,  which is based in San
Francisco,  California  and was  founded  in 1996,  leases  approximately  7,200
general-purpose railcars,  representing  approximately $410.0 million in assets,
to railroads and shippers in the U.S. and Canada. The Flex results of operations
from the date of  acquisition  through  June 30,  2003 are  included  in the CIT
consolidated  results and are not significant.  Minority interest related to the
Flex  acquisition  was $39.7  million at June 30,  2003 and is included in other
liabilities in the CIT consolidated balance sheet.


                                       14


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)

      Other intangible assets, net, comprised primarily of proprietary  computer
software and related  transaction  processes,  totaled  $14.3  million and $16.5
million at June 30, 2003 and December 31, 2002,  respectively,  and are included
in Other  Assets on the  Consolidated  Balance  Sheets.  These  assets are being
amortized  over a five year period on a  straight-line  basis,  resulting  in an
annual amortization expense of $4.4 million.

Note 13 -- 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  registered debt
securities 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
       --------------                  ----------   -----------   --------   ------------  ------------     -----
                                                                                        
June 30, 2003

ASSETS
Net finance receivables ............    $ 1,530.4     $ 3,705.9   $ 1,045.9    $21,376.5    $      --     $27,658.7
Operating lease equipment, net .....           --         637.9       164.3      6,757.8           --       7,560.0
Finance receivables held for sale ..           --          47.8       117.1      1,045.1           --       1,210.0
Cash and cash equivalents ..........        775.0         334.4        58.9        255.0           --       1,423.3
Other assets .......................      7,248.5         203.3       581.6      2,356.9     (5,057.6)      5,332.7
                                        ---------     ---------   ---------    ---------    ---------     ---------
   Total Assets ....................    $ 9,553.9     $ 4,929.3   $ 1,967.8    $31,791.3    $(5,057.6)    $43,184.7
                                        =========     =========   =========    =========    =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Debt ...............................    $28,679.5     $ 1,823.0   $ 1,807.5    $   120.8    $      --     $32,430.8
Credit balances of factoring clients           --            --          --      2,471.6           --       2,471.6
Other liabilities ..................    (24,183.2)      2,526.4      (658.0)    25,283.1           --       2,968.3
                                        ---------     ---------   ---------    ---------    ---------     ---------
   Total Liabilities ...............      4,496.3       4,349.4     1,149.5     27,875.5           --      37,870.7
Preferred securities ...............           --            --          --        256.4           --         256.4
Equity .............................      5,057.6         579.9       818.3      3,659.4     (5,057.6)      5,057.6
                                        ---------     ---------   ---------    ---------    ---------     ---------
   Total Liabilities and
   Stockholders' Equity ............    $ 9,553.9     $ 4,929.3   $ 1,967.8    $31,791.3    $(5,057.6)    $43,184.7
                                        =========     =========   =========    =========    =========     =========

December 31, 2002

ASSETS
Net finance receivables ............    $   633.5     $ 3,541.4   $   935.7    $21,749.9   $       --     $26,860.5
Operating lease equipment, net .....           --         734.6       157.1      5,812.9           --       6,704.6
Finance receivables held for sale ..           --         159.1        62.8        991.5           --       1,213.4
Cash and cash equivalents ..........      1,310.9         231.1       293.7        200.9           --       2,036.6
Other assets .......................      6,532.9         283.3       391.6      2,780.2     (4,870.7)      5,117.3
                                        ---------     ---------   ---------    ---------    ---------     ---------
   Total Assets ....................    $ 8,477.3     $ 4,949.5   $ 1,840.9    $31,535.4    $(4,870.7)    $41,932.4
                                        =========     =========   =========    =========    =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Debt ...............................    $27,760.7     $ 1,815.7   $ 2,116.8    $   (11.9)   $      --     $31,681.3
Credit balances of factoring clients           --            --          --      2,270.0           --       2,270.0
Other liabilities ..................    (24,154.1)      2,551.5    (1,396.1)    25,851.9           --       2,853.2
                                        ---------     ---------   ---------    ---------    ---------     ---------

   Total Liabilities ...............      3,606.6       4,367.2       720.7     28,110.0           --      36,804.5
Preferred securities ...............           --            --          --        257.2           --         257.2
Equity .............................      4,870.7         582.3     1,120.2      3,168.2     (4,870.7)      4,870.7
                                        ---------     ---------   ---------    ---------    ---------     ---------
   Total Liabilities and
   Stockholders' Equity ............    $ 8,477.3     $ 4,949.5   $ 1,840.9    $31,535.4    $(4,870.7)    $41,932.4
                                        =========     =========   =========    =========    =========     =========



                                       15


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)



                                                                                  CIT
               CONSOLIDATING                            CIT         Capita      Holdings     Other
            STATEMENT OF INCOME                      Group Inc.   Corporation     LLC     Subsidiaries    Eliminations    Total
            -------------------                      ----------   -----------   --------  ------------    ------------    -----
                                                                                                      
Six Months Ended June 30, 2003
Finance income .................................     $    53.9       $ 399.9     $ 95.4      $1,333.2       $    --    $ 1,882.4
Interest expense ...............................          25.4         166.6       (7.3)        493.1            --        677.8
                                                     ----------      -------     ------      --------       -------    ---------
Net finance income .............................          28.5         233.3      102.7         840.1            --      1,204.6
Depreciation on operating
   lease equipment .............................            --         194.6       38.8         318.3            --        551.7
                                                     ----------      -------     ------      --------       -------    ---------
Net finance margin .............................          28.5          38.7       63.9         521.8            --        652.9
Provision for credit losses ....................          19.6          25.7        9.6         148.7            --        203.6
                                                     ----------      -------     ------      --------       -------    ---------
Net finance margin, after provision
   for credit losses ...........................           8.9          13.0       54.3         373.1            --        449.3
Equity in net income of subsidiaries ...........         270.7            --         --            --        (270.7)          --
Other revenue ..................................           4.0          55.2       50.4         343.5            --        453.1
                                                     ---------       -------     ------      --------       -------    ---------
Operating margin ...............................         283.6          68.2      104.7         716.6        (270.7)       902.4
Operating expenses .............................          24.7          68.2       59.2         308.9            --        461.0
                                                     ---------       -------     ------      --------       -------    ---------
Income (loss) before provision for
   income taxes ................................         258.9            --       45.5         407.7        (270.7)       441.4
Benefit (provision) for income taxes ...........           5.0         (20.8)     (22.1)       (134.2)           --       (172.1)
Minority interest, after tax ...................            --            --         --          (5.4)           --         (5.4)
                                                     ---------       -------     ------      --------       -------    ---------
Net income (loss) ..............................     $   263.9       $ (20.8)    $ 23.4      $  268.1       $(270.7)   $   263.9
                                                     =========       =======     ======      ========       =======    =========
Six Months Ended June 30, 2002
Finance income .................................     $   112.6       $ 511.8     $115.4      $1,388.8       $    --     $2,128.6
Interest expense ...............................         (17.8)        220.7       (6.8)        522.4            --        718.5
                                                     ---------       -------     ------      --------       -------    ---------
Net finance income .............................         130.4         291.1      122.2         866.4            --      1,410.1
Depreciation on operating
   lease equipment .............................            --         237.3       49.7         318.9            --        605.9
                                                     ---------       -------     ------      --------       -------    ---------
Net finance margin .............................         130.4          53.8       72.5         547.5            --        804.2
Provision for credit losses ....................         251.2         165.4       10.4         125.7            --        552.7
                                                     ---------       -------     ------      --------       -------    ---------
Net finance margin, after provision
   for credit losses ...........................        (120.8)       (111.6)      62.1         421.8            --        251.5
Equity in net income of subsidiaries ...........        (398.2)           --         --            --         398.2           --
Other revenue ..................................           2.4          62.2       42.2         371.4            --        478.2
                                                     ---------       -------     ------      --------       -------    ---------
Operating margin ...............................        (516.6)        (49.4)     104.3         793.2         398.2        729.7
Operating expenses .............................       6,546.2          81.9       31.8         910.2            --      7,570.1
                                                     ---------       -------     ------      --------       -------    ---------
Income (loss) before provision for
   income taxes ................................      (7,062.8)       (131.3)      72.5        (117.0)        398.2     (6,840.4)
Benefit (provision) for income taxes ...........          45.3          50.4      (37.4)       (230.0)           --       (171.7)
Minority interest, after tax ...................            --            --         --          (5.4)           --         (5.4)
                                                     ---------       -------     ------      --------       -------    ---------
Net (loss) income ..............................     $(7,017.5)      $ (80.9)    $ 35.1      $ (352.4)      $ 398.2    $(7,017.5)
                                                     =========       =======     ======      ========       =======    =========



                                       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
            -----------------------                    ----------   -----------   --------  ------------    ------------    -----
                                                                                                     
Six Months Ended June 30, 2003

Cash Flows From
   Operating Activities:
Net cash flows provided by (used for)
   operations ....................................      $  (68.3)      $ 602.3     $(130.1)    $ 452.8     $    --     $  856.7
                                                        --------       -------     -------     -------     -------     --------
Cash Flows From
   Investing Activities:
Net decrease in financing and
   leasing assets ................................        (914.8)       (164.4)     (203.0)     (814.0)         --     (2,096.2)
Decrease in inter-company loans
   and investments ...............................        (471.6)           --          --          --       471.6           --
Other ............................................            --            --          --       (47.8)         --        (47.8)
                                                        --------       -------     -------     -------     -------     --------
Net cash flows (used for)
   investing activities ..........................      (1,386.4)       (164.4)     (203.0)     (861.8)      471.6     (2,144.0)
                                                        --------       -------     -------     -------     -------     --------
Cash Flows From
   Financing Activities:
Net increase (decrease) in debt ..................         918.8           7.3      (309.3)       61.7          --        678.5
Inter-company financing ..........................            --        (341.9)      407.6       405.9      (471.6)          --
Cash dividends paid ..............................            --            --          --       (50.8)         --        (50.8)
                                                        --------       -------     -------     -------     -------     --------
Net cash flows provided by
   (used for) financing activities ...............         918.8        (334.6)       98.3       416.8      (471.6)       627.7
                                                        --------       -------     -------     -------     -------     --------
Net increase (decrease) in cash and
   cash equivalents ..............................        (535.9)        103.3      (234.8)        7.8          --       (659.6)
Exchange rate impact on cash .....................            --            --          --        46.3          --         46.3
Cash and cash equivalents,
   beginning of period ...........................       1,310.9         231.1       293.7       200.9          --      2,036.6
                                                        --------       -------     -------     -------     -------     --------
Cash and cash equivalents,
   end of period .................................      $  775.0       $ 334.4     $  58.9     $ 255.0     $    --     $1,423.3
                                                        ========       =======     =======     =======     =======     ========



                                       17


                         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
            -----------------------                 ----------   -----------   --------  ------------    ------------    -----
                                                                                                     
Six Months Ended June 30, 2002

Cash Flows From
   Operating Activities:
Net cash flows provided by (used for)
   operations ..................................     $  384.3       $  170.1    $(112.6)     $(262.4)      $    --     $  179.4
                                                     --------       --------    -------      -------       -------     --------
Cash Flows From
   Investing Activities:
Net increase in financing and
   leasing assets ..............................        624.4          305.6      216.9        224.3            --      1,371.2
Decrease in inter-company loans
   and investments .............................        127.3             --         --           --        (127.3)          --
Other ..........................................           --             --         --          4.3            --          4.3
                                                     --------       --------    -------      -------       -------     --------
Net cash flows provided
   by (used for) investing activities ..........        751.7          305.6      216.9        228.6        (127.3)     1,375.5
                                                     --------       --------    -------      -------       -------     --------
Cash Flows From
   Financing Activities:
Net increase (decrease) in debt ................       (255.9)      (1,065.2)     129.1        366.4            --       (825.6)
Inter-company financing ........................           --          505.7      (79.6)      (553.4)        127.3           --
Cash dividends paid ............................           --             --         --           --            --           --
                                                     --------       --------    -------      -------       -------     --------
Net cash flows (used for) provided by
   financing activities ........................       (255.9)        (559.5)      49.5       (187.0)        127.3       (825.6)
                                                     --------       --------    -------      -------       -------     --------
Net increase (decrease) in cash and
   cash equivalents ............................        880.1          (83.8)     153.8       (220.8)           --        729.3
Exchange rate impact on cash ...................           --             --         --         49.8            --         49.8
Cash and cash equivalents,
   beginning of period .........................        833.4          145.1      110.6        212.4            --      1,301.5
                                                     --------       --------    -------      -------       -------     --------
Cash and cash equivalents,
   end of period ...............................     $1,713.5       $   61.3    $ 264.4      $  41.4       $    --     $2,080.6
                                                     ========       ========    =======      =======       =======     ========



                                       18


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations and Quantitative and Qualitative  Disclosure  about Market
        Risk

Recent Developments

      On July 23,  2003,  we  announced  that  Jeffrey  M. Peek will  become the
Company's  President  and Chief  Operating  Officer,  as well as a member of the
Board of Directors,  effective September 3, 2003. We also announced the creation
of an Office of the Chairman,  effective  September 3, 2003.  The members of the
Office of the Chairman will be Albert R. Gamper,  Jr., who will remain  Chairman
and Chief Executive Officer, Mr. Peek, Thomas B. Hallman, who will serve as Vice
Chairman,  Specialty  Finance,  Joseph M. Leone, who will serve as Vice Chairman
and Chief  Financial  Officer  and  Lawrence  Marsiello,  who will serve as Vice
Chairman and Chief Credit Officer.

      On July 28, 2003, we announced  that Vice Admiral John R. Ryan,  President
of the State  University of New York Maritime  College,  and William M. Freeman,
President of the Public  Communications  Group of Verizon  Communications,  have
joined  CIT's  Board  of  Directors.  CIT's  Board  is  now  comprised  of  nine
independent  members and Chief Executive Officer Albert R. Gamper, Jr., and will
expand  to a  total  of  eleven  directors  with  the  addition  of Mr.  Peek in
September.

Overview

      The   accompanying   Consolidated   Financial   Statements   include   our
consolidated  accounts.  On July 8, 2002, our former parent,  Tyco,  completed a
sale of 100% of CIT's outstanding common stock in our IPO.  Immediately prior to
the offering, our predecessor,  CIT Group Inc., a Nevada corporation, was merged
with and into its parent,  TCH, a Nevada  corporation,  and that combined entity
was further merged with and into CIT Group Inc.  (Del), a Delaware  corporation.
In  connection  with the  reorganization,  CIT Group Inc.  (Del) was renamed CIT
Group Inc. As a result of the reorganization,  CIT is the successor to CIT Group
Inc. (Nevada)'s  business,  operations and obligations and the financial results
of TCH are included in the consolidated CIT financial statements.

      Prior to our IPO on July 8, 2002, the activity of TCH consisted  primarily
of interest expense to an affiliate of Tyco, and the TCH accumulated net deficit
was relieved via a capital contribution from Tyco. The activity of TCH consisted
primarily  of interest  expense to an  affiliate  of Tyco during the period from
June 1, 2001 to June 30,  2002.  TCH had no  operations  subsequent  to June 30,
2002.  Although the financial  statements and notes thereto include the activity
of TCH in conformity with accounting  principles generally accepted in the U.S.,
management  believes that it is most meaningful to discuss our financial results
excluding TCH, due to its temporary  status as a Tyco  acquisition  company with
respect  to CIT.  Therefore,  throughout  this  section,  in  order  to  provide
comparability  with  current  quarter  and  prospective  results,  prior  period
comparisons exclude the results of TCH. Consolidating income statements for CIT,
TCH and CIT  consolidated for the quarter and six months ended June 30, 2002 are
displayed in Item 1. Consolidating  Financial Statements and Supplementary Data,
Note 12.

      Following  the  acquisition  by Tyco,  we changed our fiscal year end from
December 31 to September  30, to conform to Tyco's  fiscal year end. On November
5, 2002,  the CIT Board of Directors  approved the return to a calendar year end
effective  December  31,  2002.  As a result,  the  quarter  ended June 30, 2003
constitutes the second quarter of our calendar 2003 results.

Key Business Initiatives and Trends

      June 2003 is the fourth  quarter closed since our return to public company
status.  During the six months ended June 30, 2003, we have restored our funding
base as evidenced by the repayment in full of previously  drawn bank lines,  the
consistent  access to both the  commercial  paper and term debt  markets and the
significant  lowering of our term debt quality spreads. The section that follows
sequences the events leading up to the funding base  disruption and our eventual
IPO through to the current period.

      In early to  mid-2001,  the  e-commerce  and  telecommunications  industry
downturns  in the  economy  became  evident.  In  light  of  this  downturn,  we
recognized   impairment  charges  against  earnings  immediately  prior  to  the
acquisition  by Tyco,  including  equity  interests  related to  e-commerce  and
telecommunications.


                                       19


      After the June 2001  acquisition  by Tyco,  we broadened  and  accelerated
asset liquidation  initiatives.  Management also initiated further business line
consolidation and operating expense cost reductions, both in the corporate staff
areas and in the business units.

      The targeted non-strategic business lines and products were sold or placed
in liquidation  status,  and we ceased  originating new business in these areas.
Severance and other costs  associated with these  initiatives were identified in
plans that were approved by senior management.  These costs plus any adjustments
to reduce the carrying values of the targeted assets to fair value were provided
for primarily through purchase  accounting (Tyco's  acquisition of CIT, with the
purchase accounting adjustments "pushed-down" to CIT's financial statements). In
support of these  initiatives,  Tyco provided  nearly $900 million of additional
capital to CIT from June  through  December  of 2001.  We also  decided to cease
making new  venture  capital  investments  and to run-off our  existing  venture
capital portfolio.

      The  balance  of each of these  non-strategic/liquidating  portfolios  are
presented in the following table ($ in millions):

                                             Balance              Balance
                                          Outstanding at       Outstanding at
              Portfolio                  June 30, 2003(1)   December 31, 2002(1)
              --------                   ----------------   --------------------
Manufactured housing ..................      $  605               $  624
Franchise finance .....................         173                  322
Owner-operator trucking ...............         155                  218
Recreational marine ...................         104                  123
Recreational vehicle(2) ...............          46                   34
Wholesale inventory finance ...........           2                   18
                                             ------               ------
  Sub total - liquidating portfolios ..       1,085                1,339
Venture capital .......................         325                  335
                                             ------               ------
  Total ...............................      $1,410               $1,674
                                             ======               ======
--------------------------------------------------------------------------------
(1)   On-balance sheet financing and leasing assets.

(2)   The increase is due to repurchase of previously securitized receivables.

      In early 2002,  Tyco  announced  its break-up plan and intent to sell CIT.
Subsequent  developments  at Tyco prior to the  separation  of CIT  resulted  in
credit rating  downgrades of Tyco and similar but more limited  actions for CIT.
These rating actions  caused  significant  disruption to our historical  funding
base.  As a result,  the  Company's  access to the  commercial  paper market was
hindered,  and the Company drew down on its  existing  backup lines of credit to
meet its financing requirements.  Consequently,  management focused primarily on
liquidity  and  capital  as opposed  to growth  and  profitability.  Significant
initiatives  were  undertaken to fortify the Company's  liquidity  position,  to
address bondholder protections,  to re-access the commercial paper and term debt
markets and to strengthen our balance sheet.

      In  July  2002,  Tyco  sold  100% of CIT in our  IPO,  with  the  proceeds
(exclusive of  overallotment  proceeds) paid to our former parent.  CIT received
approximately  $250  million  when  the  underwriters  partially  exercised  the
overallotment option in our IPO.

      Immediately  following our IPO and complete separation from Tyco, our debt
credit ratings were upgraded by Standard & Poor's and Fitch. Shortly thereafter,
the Company commenced repayment of our drawn bank facilities,  which facilitated
our re-entrance into the commercial paper markets. We re-launched our commercial
paper program, and achieved  significant  outstandings at market pricing levels,
maintaining backstop liquidity to fully cover all outstanding  commercial paper.
During the  quarter  ended June 30,  2003,  we fully paid down drawn bank credit
facilities.

      Since our IPO,  we have  readily  accessed  the term  markets,  issuing an
aggregate  $10.2  billion in term debt,  comprised of $5.5 billion in fixed-rate
debt and $4.7 billion in  floating-rate  debt. These totals include $1.8 billion
issued through a retail note program, which was initiated in November 2002.


                                       20


      The events  described  resulted in an  increased  cost of funds due to our
borrowing  spreads being higher than  traditionally  experienced.  The following
table summarizes the trend in our quality spreads  (interest rate cost over U.S.
Treasury  rates) in relation to 5-year  treasuries.  Amounts are in basis points
and represent the average spread during the stated periods:



                                       Three Months Ended                            Years Ended
                              ------------------------------------   -------------------------------------------
                              June 30,     March 31,  December 31,   September 30,  September 30,   December 31,
                                2003         2003         2002           2002           2001            2000
                              --------     ---------  ------------   -------------  -------------   ------------
                                                                                      
Average spread over
  U.S. Treasuries ..........     152          215          302            313           147             154


      The  average  spread  over  U.S.  Treasuries  for the  month of July  2003
improved to 104 basis  points.  Separately,  on July 29, 2003,  we issued $750.0
million of 2-year senior  floating  rate notes at 43 basis points over LIBOR,  a
significant improvement from prior period spread levels.

      Additionally,  the Company has been  maintaining  cash liquidity levels in
excess of our historical norms.  Although our quality spreads have been trending
towards  historical levels in recent months,  management expects that margin and
earnings will continue to be negatively  impacted for the foreseeable future, as
results  will  continue  to reflect  the  higher  cost of  non-callable  funding
executed  during  this  period.  A limited  portion of our  outstanding  debt is
callable. Such debt is monitored to evaluate economic benefits to redemption.

      As management  was executing its plan to dispose of targeted  assets while
improving   liquidity  and  capital,   the  U.S.  and  world  economies   slowed
significantly.  The slowing economy dampened demand for new borrowings from CIT,
which  was  reflected  in  lower  loan  origination  levels  and  also  leads to
compressed  rental  rates  in the  commerical  aerospace  sector.  The  economic
slowdown,  in conjunction  with our emphasis on liquidating or selling  targeted
assets, and securitizing higher levels of assets to meet liquidity needs, caused
our  on-balance  sheet assets to decrease,  which in turn led to lower levels of
net interest margin.

      The poor economy also resulted in worsening borrower performance and lower
equipment values,  leading to higher loss frequency and severity,  which lowered
earnings.  In response to increasing  past due and  non-performing  loan levels,
management  increased  our  balance  sheet  reserve for credit  losses,  even as
portfolio asset levels continued to decline. Our exposures to telecommunications
and Argentina were evaluated,  with specific reserving actions taken in the year
ended September 30, 2002. These reserves were added to the balance sheet reserve
for credit losses and are separately  identified and tracked in  relationship to
the performance of the  corresponding  portfolios.  These reserving actions were
consistent with our focus to strengthen our balance sheet.

Income Statement and Balance Sheet Analysis in Relation to Prior Year

      The  following  table  summarizes  the  impact  of  various  items for the
respective  reporting  periods that affect the  comparability  of our  financial
results  under GAAP. We are  presenting  these items as a supplement to the GAAP
results to facilitate the comparability of results between periods. The adoption
of SFAS No. 142,  "Goodwill and Other  Intangible  Assets"  eliminated  goodwill
amortization and introduced goodwill  impairment charges.  The impairment charge
in the period  ended June 30, 2002 was a non-cash  charge and did not impact our
tangible capital.  The TCH results relate to a Tyco acquisition company that had
temporary  status with respect to Tyco's  acquisition of CIT. For these reasons,
we  believe  that this  table,  in  addition  to the GAAP  results,  aids in the
analysis of the significant trends in our business over the periods presented ($
in millions):



                                                         Quarter Ended            Six Months Ended
                                                           June 30,                   June 30,
                                                      ------------------         -----------------
                                                      2003          2002         2003         2002
                                                      ----          ----         ----         ----
                                                                                
Net income (loss) -- GAAP basis..................    $136.9      $(2,397.8)      $263.9     $(7,017.5)
Charges included in net income (loss):
  Goodwill impairment ...........................        --        1,999.0           --       6,511.7
  TCH losses.....................................        --          404.3           --         668.6
                                                     ------      ---------       ------     ---------
Net income -- before charges.....................    $136.9      $     5.5       $263.9     $   162.8
                                                     ======      =========       ======     =========


      The increase in 2003 net income - before  charges for both the quarter and
the  six  months  ended  June  30,  2003,  was  due  primarily  to the  specific
telecommunication and Argentine reserving actions in 2002. Excluding these prior
year reserving  actions,  which totalled $148.8 million and $207.7 million after
tax for the  quarter and the six months  ended June 30,  2002,  the  comparisons
reflect  lower  current year  interest  margin,  due to higher  borrowing  costs
resulting from the funding base disruption.


                                       21


      Managed  assets  totaled  $47.9  billion at June 30,  2003,  versus  $46.4
billion at December 31, 2002 and $47.7  billion at June 30, 2002.  Financing and
leasing  portfolio  assets totaled $37.5 billion at June 30, 2003,  versus $35.9
billion at December 31, 2002,  and $35.7 billion at June 30, 2002. The portfolio
growth for the current six month period was primarily in the Commercial  Finance
segment,  due to strong  asset-based  lending growth, and in the Capital Finance
segment,  reflecting  new  aircraft  deliveries  and the  acquisition  of a rail
operating lease  portfolio.  Home equity  receivables also grew in the Specialty
Finance segment.

Net Finance Margin

      A comparison of finance  income and net finance  margin is set forth below
($ in millions):



                                                  Quarter Ended             Six Months Ended
                                                     June 30,                    June 30,
                                                ------------------          ------------------
                                                2003          2002          2003          2002
                                                ----          ----          ----          ----
                                                                           
Finance income ..........................    $   943.2     $ 1,021.9     $ 1,882.4     $ 2,128.6
Interest expense ........................        331.1         370.2         677.8         718.5
                                             ---------     ---------     ---------     ---------
  Net finance income ....................        612.1         651.7       1,204.6       1,410.1
Depreciation on operating lease equipment        272.9         295.7         551.7         605.9
                                             ---------     ---------     ---------     ---------
  Net finance margin ....................    $   339.2     $   356.0     $   652.9     $   804.2
                                             =========     =========     =========     =========
Average earning assets ("AEA") ..........    $35,700.0     $34,670.1     $35,194.8     $35,069.7
                                             =========     =========     =========     =========
As a % of AEA:
Finance income ..........................        10.57%        11.79%        10.70%        12.14%
Interest expense ........................         3.71%         4.27%         3.85%         4.10%
                                             ---------     ---------     ---------     ---------
  Net finance income ....................         6.86%         7.52%         6.85%         8.04%
Depreciation on operating lease equipment         3.06%         3.41%         3.14%         3.46%
                                             ---------     ---------     ---------     ---------
Net finance margin as a % of AEA ........         3.80%         4.11%         3.71%         4.58%
                                             =========     =========     =========     =========


      The debt quality spread factors discussed  previously in the "Key Business
Initiatives and Trends" section  adversely  impacted interest margin in relation
to 2002 periods.  Finance income  reflected the decline in market interest rates
from June 2002. However, the corresponding  decrease in our funding costs was in
part offset by the draw down of bank facilities to pay off commercial paper, the
issuance of term debt at wider credit  spreads and higher  levels of excess cash
maintained for liquidity purposes.

      Finance income (interest on loans and lease rentals) for the quarter ended
June  30,  2003  decreased  $78.7  million  from the  same  quarter  in 2002 and
decreased  $246.2  million for the six months ended June 30, 2003 from the prior
year six  months.  AEA for the  quarter  and six  months  ended  June  30,  2003
increased  3.0% and 0.4% from the prior  year  periods.  However,  the impact of
lower  market  interest  rates more than offset the higher  asset  levels in the
finance  income  comparisons  with 2002.  This trend also  reflected an 8.5% and
11.3%  reduction in  operating  lease  rentals  primarily  resulting  from lower
rentals  on the  aerospace  portfolio  due to the  commercial  airline  industry
downturn.

      Interest  expense as a percentage of AEA averaged  3.71% and 3.85% for the
quarter and six months ended June 30, 2003,  compared to 4.27% and 4.10% for the
quarter and six months ended June 30,  2002,  as the  favorable  impact of lower
market interest rates was partially offset by higher borrowing spreads.  At June
30, 2003,  CIT had $4.6 billion in outstanding  commercial  paper and drawn bank
facilities were fully repaid. At December 31, 2002 and June 30, 2002, commercial
paper  outstanding  was  $5.0  billion  and  zero,  respectively,   while  drawn
commercial bank lines were $2.1 billion and $8.5 billion, respectively.


                                       22


      The operating lease equipment portfolio was $7.6 billion at June 30, 2003,
compared to $6.7 billion at December 31, 2002 and $6.7 billion at June 30, 2002.
The following table summarizes by segment the total operating lease portfolio ($
in millions).

                                   June 30,         December 31,       June 30,
Segment                              2003               2002             2002
-------                            --------         ------------       --------
Capital Finance................    $5,783.2           $4,719.9         $4,262.4
Specialty Finance..............     1,171.2            1,257.3          1,546.9
Equipment Finance..............       504.0              668.3            818.6
Structured Finance.............       101.6               59.1             61.8
                                   --------           --------         --------
Total..........................    $7,560.0           $6,704.6         $6,689.7
                                   ========           ========         ========

      The table below  summarizes  operating  lease  margin as a  percentage  of
average operating lease equipment for the respective periods.

                                         Quarter Ended        Six Months Ended
                                            June 30,              June 30,
                                       -----------------      ----------------
                                       2003         2002      2003        2002
                                       ----         ----      ----        ----
As a % of Average Operating
  Lease Equipment:
Rental income.......................   20.8%        24.9%     21.6%       26.0%
Depreciation expense................   14.9%        17.8%     15.7%       18.4%
                                       ----         ----      ----        ----
  Operating lease margin............    5.9%         7.1%      5.9%        7.6%
                                       ====         ====      ====        ====

      The decline in  depreciation  expense for the quarter and six months ended
June 30,  2003 from the prior  year  periods  reflects a greater  proportion  of
aircraft  and rail assets with an average  depreciable  life of 25 and 40 years,
respectively, compared to smaller-ticket asset lives generally of 3 years in the
Specialty Finance and Equipment Finance portfolios.

Net Finance Margin After Provision for Credit Losses

      The net finance  margin after  provision for credit losses (risk  adjusted
interest margin) for the quarter and six months ended June 30, 2003 increased by
$240.3  million and $197.8  million to $238.6  million and $449.3  million  from
$(1.7)  million and $251.5  million for the  comparable  periods in 2002.  These
amounts  equated to risk adjusted margin of 2.67% and (0.02)% as a percentage of
AEA for the the  quarters  ended June 30,  2003 and 2002 and 2.55% and 1.43% for
the six months ended June 30, 2003 and 2002.  These  improved  risk adjusted net
margin  comparisons  largely reflect the impact of specific reserving actions in
2002  relating to the  telecommunications  portfolio  exposure  and the economic
reforms instituted by the Argentine government. These reserving actions totalled
$240.0  million  (2.77% as a percentage  of AEA) for the quarter  ended June 30,
2002 and $335.0  million (1.91% as a percentage of AEA) for the six months ended
June 30, 2002.

      The  positive  impact on risk  adjusted  margin,  before  the  benefit  of
refinancing at better rates,  due to fair value  adjustments to mark receivables
and debt to  market  remaining  from the  Tyco  acquisition  was 13 and 40 basis
points for the quarter  ended June 30, 2003 and 2002 and 16 and 42 basis  points
for the six months ended June 30, 2003 and 2002.

      At the  date  of the  Tyco  acquisition,  we  used  discounted  cash  flow
projection  analysis  to  estimate  the fair  value of our  various  liquidating
portfolios by modeling the portfolio revenues, credit costs, servicing costs and
other  related  expenses  over  the  remaining  lives of the  portfolios.  These
discounts  are being  accreted  into  income as the  portfolios  liquidate.  The
positive impact on  risk-adjusted  margin due to purchase  accounting fair value
adjustments related to the liquidating portfolios was two and seven basis points
for the  quarters  ended June 30, 2003 and 2002 and was three  basis  points and
seven basis point for the six months ended June 30, 2003 and 2002.

Other Revenue

      Other  revenue for the  quarter  ended June 30,  2003  decreased  11.6% to
$217.6  million from $246.1  million during the quarter ended June 30, 2002, and
for the six months  ended June 30, 2003  decreased  5.2% to $453.1  million from
$478.2 million in the prior year period.  Losses on venture capital  investments
were recorded as


                                       23


reductions to other  revenue.  Other revenue was 2.44% and 2.84% as a percentage
of AEA for the quarters ended June 30, 2003 and 2002 and 2.57% and 2.73% for the
six months ended June 30, 2003 and 2002. The components of other revenue are set
forth in the following table ($ in millions):



                                               Quarter Ended        Six Months Ended
                                                  June 30,              June 30,
                                               -------------        ----------------
                                              2003       2002       2003       2002
                                              ----       ----       ----       ----
                                                                  
Fees and other income ...................    $134.6     $144.4     $279.3     $305.3
Factoring commissions ...................      44.8       42.0       91.7       79.5
Gains on securitizations ................      33.8       57.1       64.5       91.8
Gains on sales of leasing equipment .....      16.5        4.0       34.1        8.3
(Losses) on venture capital investments..     (12.1)      (1.4)     (16.5)      (6.7)
                                             ------     ------     ------     ------
Total Other Revenue .....................    $217.6     $246.1     $453.1     $478.2
                                             ======     ======     ======     ======


      The decline in total other revenue  included higher venture capital losses
and lower  securitization  gains as the prior year  included an  unusually  high
level of securitization activity due to the disruption to our historical funding
sources.  Gains from the sales of leasing  equipment  were up  primarily  in the
Specialty   Finance  segment,   reflecting   end-of-lease   equipment  sales  of
communication and other small-ticket equipment.  The reduction in fees and other
income reflected  write-downs of securitization  retained  interests due to high
prepayment activity  principally in the consumer assets and a modest loss on the
sale of a portion of the Franchise portfolio.

      The following table presents  information  regarding  securitization gains
included in the table above ($ in millions):



                                                  Quarter Ended       Six Months Ended
                                                    June 30,               June 30,
                                                 ---------------      ----------------
                                                 2003       2002       2003       2002
                                                 ----       ----       ----       ----
                                                                    
Volume securitized(1) ........................ $1,652.5   $2,738.7   $2,889.9   $5,464.6
Gains ........................................   $ 33.8     $ 57.1     $ 64.5     $ 91.8
Gains as a percentage of volume securitized...     2.05%      2.08%      2.23%      1.68%


--------------------------------------------------------------------------------
(1)   Excludes  short-term trade receivables  securitized for liquidity purposes
      at no gain.

      The trend in the gains as a percentage of volume  securitized  for the six
months reflects the fact that the first quarter 2002  securitization  volume was
securitized  at lower gain  percentages  in  comparison  to first  quarter  2003
largely  due to asset  mix.  The  greater  volume  securitized  in 2002 was done
primarily to meet funding and liquidity needs.

      The key assumptions  used in measuring the retained  interests at the date
of  securitization  for transactions  completed during the six months ended June
30, 2003 were as follows:

                                                 Commercial Equipment   Consumer
                                                ----------------------  --------
                                                Specialty    Equipment    Home
                                                 Finance      Finance    Equity
                                                ---------    ---------  --------
Weighted average prepayment speed ............   29.80%       12.51%     24.40%
Weighted average expected credit losses ......    0.46%        1.17%      0.90%
Weighted average discount rate ...............   11.88%        9.00%     13.00%
Weighted average life (in years) .............    1.31         1.90       3.51

      Key  assumptions  used in  calculating  the  fair  value  of the  retained
interests  in  securitized  assets  by  product  type at June 30,  2003  were as
follows:

                                  Commercial Equipment          Consumer
                                  -------------------- -------------------------
                                                       Manufactured Recreational
                                  Specialty  Equipment    Housing &    Vehicle
                                   Finance    Finance   Home Equity    & Boat
                                   -------    -------   -----------    ------
Weighted average prepayment
  speed ........................    21.41%     12.09%      26.41%       18.15%
Weighted average expected
  credit losses ................     0.97%      1.90%       1.16%        0.82%
Weighted average
  discount rate ................    11.10%     10.31%      13.08%       14.31%
Weighted average life
  (in years) ...................     1.15       1.44        3.07         3.12


                                       24


Salaries and General Operating Expenses

      The  efficiency  ratio and the ratio of  salaries  and  general  operating
expenses to average  managed assets ("AMA") are two metrics that management uses
to monitor productivity and are set forth in the following table. The efficiency
ratio measures the level of expenses in relation to revenue earned,  whereas the
AMA  relationship  measures the  efficiency of expenses in relation to loans and
leases we collect and service  represented by our managed asset base. The AMA is
used to better reflect the relationship of expenses recognized in the Statements
of Income with all applicable asset sources ($ in millions).

                                        Quarter Ended          Six Months Ended
                                           June 30,                June 30,
                                       ----------------        ----------------
                                       2003        2002        2003        2002
                                       ----        ----        ----        ----
Efficiency ratio(1) ............       40.8%       38.3%       41.7%       35.7%
Salaries and general operating
  expenses as a percentage
  of AMA(2) ....................       1.99%       2.02%       2.03%       1.97%
Salaries and general operating
  expenses .....................     $227.4      $230.4      $461.0      $457.3

--------------------------------------------------------------------------------
(1)   Efficiency ratio is the ratio of salaries and general  operating  expenses
      to operating margin, excluding the provision for credit losses.

(2)   "AMA" means average managed  assets,  which is average earning assets plus
      the  average  of  finance  receivables  previously  securitized  and still
      managed by us.

      Salaries and general  operating  expenses  for the quarter  ended June 30,
2003  decreased  1.3% from the prior year quarter to $227.4 million and included
lower  collection and  repossession  expenses and reduced costs  associated with
securitization  facilities.  For the six months ended June 30, 2003 salaries and
general operating  expenses  increased 0.8% from the prior year period to $461.0
million.  Personnel  was 5,845,  unchanged  from the prior quarter and down from
5,935 at June 30, 2002.

      The  deterioration  in  efficiency  ratios for the  quarter and six months
ended June 30,  2003 to 40.8% and 41.7% from 38.3% and 35.7% for the  comparable
periods of 2002 is the result of lower net finance  margin in 2003.  We continue
to target an efficiency  ratio in the mid 30% area and an AMA ratio under 2.00%,
as we  have  the  existing  capacity  to  increase  assets  without  significant
additional expense.

      Expenses are monitored  closely by business unit and corporate  management
and are reviewed monthly with our senior  management as to trends and forecasts.
To ensure overall project cost control,  an approval and review  procedure is in
place for major capital  expenditures,  such as computer equipment and software,
including post-implementation evaluations.

Provision for Credit Losses

      The provision for credit losses was $100.6  million and $203.6 million for
the quarter and six months months ended June 30, 2003 versus $357.7  million and
$552.7  million for the same periods  last year.  The 2002  provisions  included
specific reserving actions related to our  telecommunications  portfolio ($200.0
million) and the economic  reforms  instituted by the Argentine  government that
resulted in the mandatory conversion of dollar-denominated  receivables into the
peso ($135.0 million).


                                       25


      Our provision for credit losses and reserve for credit losses are
presented in the following table ($ in millions):



                                                       For the Quarter Ended    For the Six Months Ended
                                                       ---------------------    ------------------------
                                                       June 30,     June 30,    June 30,        June 30,
                                                         2003         2002        2003           2002
                                                       --------     --------    --------        --------
                                                                                    
Balance beginning of period ..........................  $757.0       $554.9      $760.8         $496.4
                                                        ------       ------      ------         ------
Provision for credit losses ..........................   100.6        117.7       203.6          217.7
Provision for credit losses -- telecommunications ....      --        200.0          --          200.0
Provision for credit losses -- Argentine exposure ....      --         40.0          --          135.0
Reserves relating to dispositions, acquisitions, other     5.7         22.3        13.2           (1.8)
                                                        ------       ------      ------         ------
  Additions to reserve for credit losses .............   106.3        380.0       216.8          550.9
                                                        ------       ------      ------         ------
Net credit losses:
Specialty Finance -- commercial ......................    23.9         21.2        54.9           40.8
Equipment Finance ....................................    38.6         64.9        76.7          126.0
Capital Finance ......................................      --           --         1.8             --
Commercial Finance ...................................    21.3         29.0        37.9           49.2
Structured Finance ...................................     8.6           --        22.4            0.1
Specialty Finance -- consumer ........................    16.0         10.9        29.0           22.3
                                                        ------       ------      ------         ------
  Total net credit losses ............................   108.4        126.0       222.7          238.4
                                                        ------       ------      ------         ------
Balance end of period ................................  $754.9       $808.9      $754.9         $808.9
                                                        ======       ======      ======         ======
Reserve for credit losses as a percentage of finance
  Receivables(1) .....................................                             2.66%          2.90%
                                                                                 ======         ======
Reserve for credit losses as a percentage of past due
  receivables (sixty days or more)(1) ................                             81.5%          78.5%
                                                                                 ======         ======


--------------------------------------------------------------------------------
(1)   The reserve for credit losses  excluding  the impact of  telecommunication
      and Argentine reserves as a percentage of finance receivables was 1.78% at
      June 30, 2003 and 1.75% at June 30,  2002.  The reserve for credit  losses
      excluding  the impact of  telecommunication  and  Argentine  reserves as a
      percentage  of past due  receivables  (sixty  days or more)  was 55.6% and
      44.1% at June 30, 2003 and 2002, respectively.

      The tables that follow  detail net  charge-offs  for the  quarters and six
months ended June 30, 2003 and June 30, 2002 by segment, both in amount and as a
percentage of average finance receivables on an annualized basis. In addition to
total   amounts,    net   charge-offs    relating   to   the   liquidating   and
telecommunications  portfolios are presented to provide enhanced  analysis ($ in
millions):



                                                               Quarter Ended June 30, 2003
                                                 ---------------------------------------------------------
                                                                        Before
                                                                    Liquidating and      Liquidating and
                                                        Total      Telecommunications   Telecommunications
                                                 ----------------- ------------------   ------------------
                                                                                  
Specialty Finance -- commercial................   $ 23.9    1.33%     $ 23.9   1.33%       $   --     --
Equipment Finance..............................     38.6    2.51%       26.1   1.82%         12.5  12.00%
Capital Finance................................       --      --          --     --            --     --
Commercial Finance.............................     21.3    0.96%       18.6   0.84%          2.7  76.80%
Structured Finance.............................      8.6    1.18%         --     --           8.6   5.38%
                                                  ------              ------               ------
   Total Commercial Segments...................     92.4    1.40%       68.6   1.09%         23.8   8.87%
Specialty Finance -- consumer..................     16.0    2.62%        9.9   2.43%          6.1   3.01%
                                                  ------              ------               ------
   Total.......................................   $108.4    1.51%     $ 78.5   1.17%       $ 29.9   6.33%
                                                  ======              ======               ======



                                       26




                                                   Quarter Ended June 30, 2002
                                      ---------------------------------------------------------
                                                             Before
                                                         Liquidating and      Liquidating and
                                             Total      Telecommunications   Telecommunications
                                      ----------------- ------------------   ------------------
                                                                       
Specialty Finance -- commercial ..    $ 21.2      1.36%  $ 19.3      1.28%   $  1.9      4.59%
Equipment Finance ................      64.9      3.14%    50.5      2.83%     14.4      5.10%
Capital Finance ..................        --        --       --        --        --        --
Commercial Finance ...............      29.0      1.61%    29.0      1.61%       --        --
Structured Finance ...............        --        --       --        --        --        --
                                      ------             ------              ------
   Total Commercial Segments .....     115.1      1.78%    98.8      1.61%     16.3      5.03%
Specialty Finance -- consumer ....      10.9      1.86%     6.8      1.86%      4.1      1.88%
                                      ------             ------              ------
    Total ........................    $126.0      1.79%  $105.6      1.63%   $ 20.4      3.75%
                                      ======             ======              ======

                                                  Six Months Ended June 30, 2003
                                      ---------------------------------------------------------
                                                             Before
                                                         Liquidating and      Liquidating and
                                             Total      Telecommunications   Telecommunications
                                      ----------------- ------------------   ------------------

Specialty Finance -- commercial ..    $ 54.9      1.53%  $ 54.5      1.52%   $  0.4      7.84%
Equipment Finance ................      76.7      2.45%    55.8      1.92%     20.9      8.94%
Capital Finance ..................       1.8      0.29%     1.8      0.29%       --        --
Commercial Finance ...............      37.9      0.88%    35.2      0.82%      2.7     37.24%
Structured Finance ...............      22.4      1.54%      --        --      22.4      6.84%
                                      ------             ------              ------
   Total Commercial Segments .....     193.7      1.48%   147.3      1.18%     46.4      8.08%
Specialty Finance -- consumer ....      29.0      2.53%    16.5      2.23%     12.5      3.05%
                                      ------             ------              ------
   Total .........................    $222.7      1.56%  $163.8      1.23%   $ 58.9      5.99%
                                      ======             ======              ======

                                                   Six Months Ended June 30, 2002
                                      ---------------------------------------------------------
                                                             Before
                                                         Liquidating and      Liquidating and
                                             Total      Telecommunications   Telecommunications
                                      ----------------- ------------------   ------------------
Specialty Finance -- commercial ..    $ 40.8      1.31%  $ 36.1      1.19%   $  4.7      5.86%
Equipment Finance ................     126.0      2.82%    82.9      2.14%     43.1      7.40%
Capital Finance ..................        --        --       --        --        --        --
Commercial Finance ...............      49.2      1.40%    49.2      1.40%       --        --
Structured Finance ...............       0.1      0.01%     0.1      0.01%       --        --
                                      ------             ------              ------
   Total Commercial Segments .....     216.1      1.65%   168.3      1.39%     47.8      4.67%
Specialty Finance -- consumer ....      22.3      1.83%    12.5      1.41%      9.8      2.95%
                                      ------             ------              ------
   Total .........................    $238.4      1.66%  $180.8      1.39%   $ 57.6      4.25%
                                      ======             ======              ======


      Certain small  business loans and leases were  transferred  from Equipment
Finance to Specialty  Finance -- commercial during the March 2003 quarter (prior
period amounts have not been restated).  Charge-offs  related to the transferred
portfolios  during the quarter and six months  ended June 30, 2003  totaled $6.9
million and $18.0  million,  respectively,  versus $5.1 million and $8.8 million
during the quarter and six months ended June 30, 2002,  respectively.  Excluding
the impact of the transfers,  charge-offs  were down from the prior year periods
for both Equipment Finance and Specialty Finance -- commercial.  The increase in
the  Structured   Finance  segment  relates   entirely  to  charge-offs  in  the
telecommunications sector.

Reserve for Credit Losses

      The  reserve  for credit  losses  was  $754.9  million or 2.66% of finance
receivables at June 30, 2003 compared to $760.8 million  (2.75%) at December 31,
2002 and  $808.9  million  (2.90%)  at June 30,  2002.  The  decrease  from both
December 31, 2002 and June 30, 2002 reflects telecommunication charge-offs which
were applied to the specific  telecommunications  reserve  established  in 2002,
partially  offset by reserves  associated with loan growth during the respective
periods. In 2002, we took two specific reserving actions. First, in light of the
continued  deterioration in the  telecommunications  sector,  particularly  with
respect to our competitive local exchange carrier ("CLEC")  portfolio,  we added
$200.0  million  to  the  reserve  for  credit  losses  as  at  June  30,  2002.
Additionally,  as


                                       27


a result of the  Argentine  government's  action to  convert  dollar-denominated
loans to pesos, and continued weakness in the peso, we recorded a $135.0 million
provision  ($95.0  million  during the  quarter  ended  March 31, 2002 and $40.0
million  during the quarter ended June 30, 2002).  The current  balances for the
specific reserves are detailed below.

      The  following  table  presents the  components  of the reserve for credit
losses, both in amount and as a percentage of corresponding  finance receivables
($ in millions):



                         At June 30, 2003     At December 31, 2002     At June 30, 2002
                         ----------------     --------------------    -------------------
                         Amount       %        Amount         %        Amount        %
                         ------     -----     --------     -------    --------    -------
                                                                 
Finance receivables...   $491.8      1.78%      $472.2      1.77%      $473.9      1.75%
Telecommunications        128.1     19.77%(1)    153.6     22.40%(1)    200.0     29.77(1)
Argentina ............    135.0     80.36%(2)    135.0     73.11%(2)    135.0     75.00%(2)
                         ------                 ------                 ------
Total ................   $754.9      2.66%      $760.8      2.75%      $808.9      2.90%
                         ======                 ======                 ======


--------------------------------------------------------------------------------
(1)   Percentages of telecommunications portfolio finance receivables.

(2)   Percentages of finance receivables in Argentina.

      The reserve includes  specific amounts relating to SFAS 114 impaired loans
(excluding  telecommunications and Argentina) of $51.7 million at June 30, 2003,
compared to $52.9 million at December 31, 2002,  and $153.0  million at June 30,
2002.  Management  continues to believe that the credit risk  characteristics of
the  portfolio  are  well  diversified  by  geography,  industry,  borrower  and
equipment type. Refer to "Concentrations" for more information.

      The total  telecommunications  portfolio  including the portion comprising
the CLEC  exposure  amounted to $647.9  million  and $224.3  million at June 30,
2003,  compared to $710.1  million and $262.3  million at December  31, 2002 and
$725.7  million  and $288.3  million at June 30,  2002.  Telecommunications  net
charge-offs  were $11.3 million and $25.1 million for the quarter and six months
ended June 30, 2003, respectively.

      We established a $135 million reserve for Argentine  exposure in the first
half of 2002 to reflect the  geopolitical  risks  associated with collecting our
peso-based assets and repatriating them into U.S. dollars that resulted from the
Argentine government instituting certain economic reforms. When established, the
reserve was about two-thirds of our combined  currency and credit  exposure.  We
have made progress in collecting  these balances and the portfolio's  underlying
credit profile continues to perform as expected.  Discussions with the Argentine
government  are ongoing and additional  recovery  efforts  continue.  Management
expects to seek  resolution in the coming  quarters and charge-offs are expected
to be  recorded  against  the  reserve as these  activities  are  concluded.  We
continue to believe that the reserve is adequate.

      The  consolidated  reserve  for credit  losses is  intended to provide for
losses  inherent in the portfolio,  which requires the  application of estimates
and significant  judgment as to the ultimate  outcome of collection  efforts and
realization of collateral,  among other things.  Therefore,  changes in economic
conditions  or other  events  affecting  specific  obligors  or  industries  may
necessitate  additions  or  reductions  to the  consolidated  reserve for credit
losses.


                                       28


Past Due and Non-Performing Assets

      The following table sets forth certain information concerning our past due
(sixty  days  or  more)  and  non-performing   assets  (finance  receivables  on
non-accrual status and assets received in satisfaction of loans) and the related
percentages of finance  receivables at June 30, 2003, December 31, 2002 and June
30, 2002 ($ in millions):



                                                       At June 30,       At December 31,        At June 30,
                                                          2003                2002                 2002
                                                    ---------------     ----------------     ----------------
                                                                                      
Finance receivables, past due 60 days or more:
   Specialty Finance -- commercial.............     $249.6    3.58%     $  182.9   3.07%     $  250.3   4.06%
   Equipment Finance...........................      253.0    4.21%        359.3   4.88%        370.5   4.77%
   Capital Finance.............................       99.2    8.37%         85.5   6.40%         36.8   2.40%
   Commercial Finance..........................      130.5    1.46%        172.3   2.14%        195.3   2.39%
   Structured Finance..........................       65.7    2.27%         67.6   2.31%         44.9   1.73%
                                                    ------              --------             --------
   Total Commercial Segments...................      798.0    3.07%        867.6   3.39%        897.8   3.42%
   Specialty Finance-- consumer................      128.1    5.26%        133.7   6.66%        132.4   7.81%
                                                    ------              --------             --------
   Total.......................................     $926.1    3.26%     $1,001.3   3.63%     $1,030.2   3.69%
                                                    ======              ========             ========
Non-performing assets:
   Specialty Finance -- commercial.............     $140.0    2.01%      $  98.2   1.65%     $  125.7   2.04%
   Equipment Finance...........................      337.8    5.62%        403.5   5.48%        484.5   6.23%
   Capital Finance.............................       83.1    7.01%        154.9  11.60%         25.5   1.67%
   Commercial Finance..........................      107.4    1.20%        136.2   1.69%        143.2   1.75%
   Structured Finance..........................      133.9    4.64%        151.6   5.19%        128.3   4.95%
                                                    ------              --------             --------
   Total Commercial Segments...................      802.2    3.09%        944.4   3.69%        907.2   3.46%
   Specialty Finance -- consumer...............      139.0    5.70%        141.4   7.04%        145.4   8.58%
                                                    ------              --------             --------
   Total.......................................     $941.2    3.31%     $1,085.8   3.93%     $1,052.6   3.77%
                                                    ======              ========             ========
Non-accrual loans..............................     $804.6              $  946.4             $  878.9
Repossessed assets.............................      136.6                 139.4                173.7
                                                    ------              --------             --------
   Total non-performing assets.................     $941.2              $1,085.8             $1,052.6
                                                    ======              ========             ========


      Past due loans  continued  a  declining  trend,  down $75.2  million  from
December 31, 2002,  ending the quarter at 3.26% of finance  receivables,  versus
3.93% and 3.77% at December 31, 2002 and June 30, 2002. The  fluctuations in the
Equipment  Finance and  Specialty  Finance -- commercial  segments,  reflect the
previously  mentioned transfer of small business loans and leases from Equipment
Finance to Specialty  Finance -- commercial.  Past due accounts related to these
transferred portfolios  approximated $74 million, $79 million and $61 million at
June 30, 2003, December 31, 2002 and June 30 2002,  respectively.  Excluding the
impact of the transferred  accounts,  past due accounts in Equipment Finance and
Specialty  Finance  --  commercial  were  below  the  prior  two  quarters.  The
Commercial  Finance  decline from December 2002 was due to  improvements in both
the Commercial Services  (factoring) and Business Credit  (asset-based  lending)
units, while the continued  increase in aerospace  delinquency drove the Capital
Finance trend.

      Similar to past due loans,  non-performing  assets  declined for the third
consecutive  quarter at June 30,  2003.  Excluding  the impact of the  portfolio
transfers,  the reduction for the quarter was primarily in factoring, the vendor
and small ticket  commercial  portfolios  of Specialty  Finance,  as well as the
commercial aerospace portfolio, as aircraft securing United Airlines receivables
on non-accrual at December 31, 2002 were placed on short-term  operating  leases
and payments were received during the first quarter of 2003 to bring the account
to current  status.  This  reduction  was in part offset by the placement of Air
Canada assets on non-accrual status following its bankruptcy announcement.


                                       29


      Managed past due loans, which also include securitized loans, decreased to
3.20% of managed  financial  assets  (managed  assets less operating  leases and
venture  capital  investments) at June 30, 2003 from 3.55% and 3.74% at December
31,  2002 and June 30,  2002,  respectively,  as shown in the table  below ($ in
millions):



                                                      June 30, 2003      December 31, 2002      June 30, 2002
                                                    -----------------    -----------------     ----------------
                                                                                        
Managed Financial Assets, past due 60 days or more:
   Specialty Finance -- commercial.............     $  318.5    2.88%     $  265.1   2.62%     $  331.7   3.15%
   Equipment Finance...........................        395.5    3.94%        545.7   4.78%        680.6   5.42%
   Capital Finance.............................         99.2    8.37%         85.5   6.40%         36.8   2.40%
   Commercial Finance..........................        130.5    1.46%        172.3   2.14%        195.3   2.39%
   Structured Finance..........................         65.7    2.27%         67.6   2.31%         44.9   1.73%
                                                    --------              --------             --------
   Total Commercial............................      1,009.4    2.96%      1,136.2   3.36%      1,289.3   3.65%
   Specialty Finance -- consumer...............        268.4    4.55%        259.4   4.71%        230.8   4.39%
                                                    --------              --------             --------
   Total.......................................     $1,277.8    3.20%     $1,395.6   3.55%     $1,520.1   3.74%
                                                    ========              ========             ========


      The  fluctuations  in the  Equipment  Finance  and  Specialty  Finance  --
commercial segments, reflect the previously mentioned transfer of small business
loans and leases from Equipment Finance to Specialty Finance -- commercial. Past
due accounts related to these transferred  portfolios  approximated $74 million,
$79  million  and $61 million at June 30,  2003,  December  31, 2002 and June 30
2002, respectively.

      In light of the continued general economic weakness, and the circumstances
surrounding  particular  sectors  as  discussed  in  "Concentrations",  past due
finance  receivables  and  non-performing  assets may increase from the June 30,
2003 amounts.

Income Taxes

      The effective tax rate was 39.0% for both the quarter and six months ended
June 30, 2003, and (5.3)% and (2.5)% for the respective prior year periods.  The
provision  for income taxes  totaled  $89.2  million and $121.3  million for the
quarters  ended June 30,  2003 and 2002,  respectively,  and $172.1  million and
$171.7 million for the comparable prior year periods. The effective tax rate for
the prior  year  quarter  and six  months,  excluding  the impact of TCH and the
non-cash goodwill impairment charge, was 41.4% and 38.2%.

      As of June 30, 2003,  we had  approximately  $1,559.0  million of tax loss
carry-forwards,  primarily related to U.S. federal and state jurisdictions.  The
federal loss  carryforwards  expire at various dates  through  2021.  These loss
carry-forwards  are available to offset current federal income tax  liabilities,
subject to certain limitations.

      In  connection  with the June 2001  acquisition  by Tyco,  our  income tax
compliance,  reporting and planning function was transferred to Tyco.  Following
our 2002 IPO and separation from Tyco we have made strides in rebuilding our tax
functions, including hiring personnel, and rebuilding systems and processes.

Results by Business Segment

      Our segment  reporting  has been  modified and prior  periods  restated to
reflect Equipment Finance and Capital Finance as separate segments.  Previously,
these two strategic business units were combined as the Equipment  Financing and
Leasing segment. This presentation is intended to facilitate the analysis of our
results for our financial statement users.


                                       30


      The table  that  follows  summarizes  selected  financial  information  by
business  segment,  based upon a fixed leverage ratio across  business units and
the allocation of most corporate expenses ($ in millions):



                                                Quarter Ended                 Six Months Ended
                                         -------------------------------    --------------------
                                         June 30,  March 31,   June 30,     June 30,    June 30,
                                           2002      2003       2002          2003        2002
                                         --------  ---------   --------     --------    --------
                                                                        
Net Income (Loss)
Specialty Finance ....................    $ 63.0    $ 52.2    $    83.8      $115.2    $   183.8
Equipment Finance ....................       7.9      10.7         31.7        18.6         72.1
Capital Finance ......................       9.1       7.7         22.8        16.8         45.0
Commercial Finance ...................      55.6      54.1         46.0       109.7         92.2
Structured Finance ...................      14.7      12.2         15.3        26.9         31.7
                                          ------    ------    ---------      ------    ---------
   Total Segments ....................     150.3     136.9        199.6       287.2        424.8
Corporate, including certain charges..     (13.4)     (9.9)    (2,597.4)      (23.3)    (7,442.3)
                                          ------    ------    ---------      ------    ---------
  Total ..............................    $136.9    $127.0    $(2,397.8)     $263.9    $(7,017.5)
                                          ======    ======    =========      ======    =========
Return on AEA
Specialty Finance ....................      2.07%     1.75%        3.12%       1.91%        3.22%
Equipment Finance ....................      0.46%     0.60%        1.35%       0.53%        1.44%
Capital Finance ......................      0.54%     0.50%        1.59%       0.52%        1.63%
Commercial Finance ...................      3.44%     3.58%        3.20%       3.50%        3.57%
Structured Finance ...................      1.95%     1.63%        2.31%       1.79%        2.43%
  Total Segments .....................      1.70%     1.60%        2.33%       1.65%        2.45%
Corporate, including certain charges..     (0.17)%   (0.13)%     (25.33)%     (0.15)%     (38.65)%
  Total ..............................      1.53%     1.47%      (23.00)%      1.50%      (36.20)%


      Return on AEA for the business  segments after Corporate and certain other
charges was 1.53% and 1.50% for the  quarter and six months  ended June 30, 2003
versus (23.00)% and (36.21)% for the comparable periods of 2002. The improvement
over the prior  year was  primarily  the  result of  certain  corporate  charges
described  below. On a segment basis,  results  reflect the dampened  returns in
Capital  Finance  and  Equipment   Finance,   continued  strong  performance  by
Commercial Finance,  reduced  securitization  gains in Specialty Finance and the
allocation  to the  segments  of  higher  corporate  borrowing  costs in 2003 as
described below.

      Corporate included the following items in the quarter and six months ended
June 30, 2002: (1) goodwill impairment of $1,999.0 million and $6,511.7 million,
(2) TCH expenses of $288.8 million ($404.3 million after tax) and $601.1 million
($668.6  million after tax),  (3) specific loan loss reserves of $240.0  million
($148.8  million  after  tax) and  $335.0  million  ($207.7  million  after tax)
relating to  telecommunication  exposures and economic reforms instituted by the
Argentine   government   which   resulted  in  the   mandatory   conversion   of
dollar-denominated  receivables  into pesos and (4)  venture  capital  operating
losses of $9.8 million ($6.0 million after tax) and $23.5 million ($14.6 million
after tax). Corporate included $21.6 million ($13.2 million after tax) and $36.1
million ($22.1  million after tax) of venture  capital  operating  losses in the
quarter and six months ended June 30, 2003.  Excluding these items,  unallocated
corporate  expenses  and  funding  costs  after tax were $0.2  million and $39.3
million  during the quarters  ended June 30, 2003 and 2002 and were $1.3 million
and $39.7 million for the six months ended June 30, 2003 and 2002, respectively,
reflecting the change in borrowing cost allocation as explained below.

      For the  first  six  months of 2003,  return  on AEA was down  across  all
segments in relation to the 2002 period reflecting margin  compression offset in
part by lower charge-offs from the year ago levels.  The business segments' risk
adjusted  margins for the quarter  ended June 30, 2003 were further  dampened by
the allocation (from Corporate) of additional  borrowing costs stemming from the
2002  disruption to the Company's  funding base and enhanced  liquidity  levels.
These  additional  costs  have had a  greater  impact  in 2003.  The  additional
borrowing and liquidity costs were included in Corporate in 2002.

      The unfavorable variance in Equipment Finance reflected reduced returns in
construction  and  industrial,  while Capital  Finance  included lower aerospace
profitability. In addition to lower risk adjusted margins, the Specialty Finance
comparisons  with the prior  year  reflected  higher  levels  of  securitization
activity during the prior year done primarily for liquidity purposes.


                                       31


      During  the  quarter  ended  March  31,  2003,  in order to  better  align
competencies,  we transferred  $1,078.6  million of certain small business loans
and leases, including the small business lending unit, from Equipment Finance to
Specialty Finance -- commercial. Prior periods have not been restated to conform
to this current presentation.

Financing and Leasing Assets

      Owned financing and leasing portfolio assets totaled $37.5 billion at June
30, 2003, up from $35.9 billion at December 31, 2002. Managed assets,  comprised
of owned  financing  and  leasing  assets  and  finance  receivables  previously
securitized that we continue to manage,  totaled $47.9 billion at June 30, 2003,
up from $46.4 billion at December 31, 2002.  Growth in our portfolio  assets for
the six months ended June 30, 2003 was most notable in Capital  Finance due to a
$410.0  million rail  operating  lease  portfolio  acquisition  and new aircraft
deliveries,  and  in  Commercial  Finance  due  to  the  combination  of  strong
asset-based  lending and factoring new business volumes.  Growth was also strong
in Specialty  Finance --  consumer,  reflecting  opportunistic  home equity bulk
purchases.  During the March 2003  quarter,  certain asset  portfolios  totaling
approximately $1 billion were  transferred  from Equipment  Finance to Specialty
Finance -- commercial. Excluding factoring, total origination volume was up from
2002 by 19% and 7% for the quarter and the six months.  The favorable  variances
were primarily driven by Business Credit and Specialty Finance.

      As of June 30, 2003, the net  investment in leveraged  leases totaled $1.2
billion, or 4.3% of finance receivables. The major components of this amount are
as follows:  commercial  aerospace of $472  million,  including  $216 million of
tax-optimization  leveraged  leases,  which  generally  have  increased risk for
lessors in relation to conventional lease structures due to additional  leverage
in the transactions; $309 million of project finance transactions,  primarily in
the power and utility sector; and $230 million in rail transactions.


                                       32


      The  managed  assets  of  our  business  segments  and  the  corresponding
strategic business units are presented in the following table ($ in millions):



                                           At           At                 Change
                                        June 30,    December 31,  -------------------------
                                          2003          2002          $               %
                                        ---------   ------------  ---------       ---------
                                                                     
Specialty Finance:
Commercial:
  Finance receivables(1) .............  $ 7,598.0    $ 6,722.4    $   875.6         13.0%
  Operating lease equipment, net .....    1,171.2      1,257.3        (86.1)        (6.8)%
                                        ---------    ---------    ---------
    Total commercial .................    8,769.2      7,979.7        789.5          9.9%
                                        ---------    ---------    ---------
Consumer:
  Home equity ........................    1,502.1      1,292.7        209.4         16.2%
  Other ..............................    1,329.5      1,044.4        285.1         27.3%
                                        ---------    ---------    ---------
    Total consumer ...................    2,831.6      2,337.1        494.5         21.2%
                                        ---------    ---------    ---------
  Total Specialty Finance Segment ....   11,600.8     10,316.8      1,284.0         12.4%
                                        ---------    ---------    ---------
Equipment Finance:
  Finance receivables(1) .............    6,207.0      7,476.9     (1,269.9)        17.0%
  Operating lease equipment, net .....      504.0        668.3       (164.3)       (24.6)%
                                        ---------    ---------    ---------
  Total Equipment Finance Segment ....    6,711.0      8,145.2     (1,434.2)       (17.6)%
                                        ---------    ---------    ---------
Capital Finance:
  Finance receivables ................    1,185.2      1,335.8       (150.6)       (11.3)%
  Operating lease equipment, net .....    5,783.2      4,719.9      1,063.3         22.5%
                                        ---------    ---------    ---------
    Total Capital Finance Segment ....    6,968.4      6,055.7        912.7         15.1%
                                        ---------    ---------    ---------
Commercial Finance:
  Commercial Services ................    4,766.3      4,392.5        373.8          8.5%
  Business Credit ....................    4,147.1      3,649.1        498.0         13.6%
                                        ---------    ---------    ---------
    Total Commercial Finance Segment..    8,913.4      8,041.6        871.8         10.8%
                                        ---------    ---------    ---------
Structured Finance:
  Finance receivables ................    2,888.4      2,920.9        (32.5)        (1.1)
  Operating lease equipment, net .....      101.6         59.1         42.5         71.9%
                                        ---------    ---------    ---------
    Total Structured Finance Segment..    2,990.0      2,980.0         10.0          0.3%
                                        ---------    ---------    ---------
Equity investments(3) ................      325.4        335.4        (10.0)        (3.0)%
                                        ---------    ---------    ---------
  TOTAL FINANCING AND LEASING
    PORTFOLIO ASSETS .................   37,509.0     35,874.7      1,634.3          4.6%
                                        ---------    ---------    ---------
Finance receivables securitized:
Equipment Finance ....................    3,819.9      3,936.2       (116.3)        (3.0)%
Specialty Finance -- commercial ......    3,473.9      3,377.4         96.5          2.9%
Specialty Finance -- consumer ........    3,062.7      3,168.8       (106.1)        (3.3)%
                                        ---------    ---------    ---------
    Total ............................   10,356.5     10,482.4       (125.9)        (1.2)%
                                        ---------    ---------    ---------
    TOTAL MANAGED ASSETS(2) ..........  $47,865.5    $46,357.1    $ 1,508.4          3.3%
                                        =========    =========    =========


--------------------------------------------------------------------------------
(1)   During the quarter  ended March 31,  2002,  finance  receivables  totaling
      $1,078.6  million were  transferred  from  Equipment  Finance to Specialty
      Finance -- commercial,  principally  representing  small  business  loans.
      Prior   periods  have  not  been   restated  to  conform  to  the  current
      presentation.

(2)   Managed  assets are  comprised of financing  and leasing  assets  (finance
      receivables,  finance  receivables  held for sale,  operating  leases  and
      equity investments) and finance receivables previously securitized that we
      continue to manage.

(3)   Included in other assets in the consolidated balance sheet.


                                       33


Concentrations

      Our ten largest  financing  and leasing  asset  accounts in the  aggregate
represented  5.1% of our total  financing  and  leasing  assets at June 30, 2003
(with the largest account  representing less than 1.0%) and 5.0% at December 31,
2002. All ten accounts at each period of time were commercial  accounts and were
secured by equipment, accounts receivable or inventory.

      Our strategic relationships with industry-leading  equipment vendors are a
significant origination channel for our financing and leasing activities.  These
vendor alliances include traditional vendor finance programs, joint ventures and
profit sharing structures. Our vendor programs with Dell, Snap-on and Avaya Inc.
are among our largest  alliances.  The joint  venture  agreements  with Dell and
Snap-on  extend until  October 2005 and January  2007,  respectively.  The Avaya
agreement was recently extended through September 2006.

      At June 30,  2003,  our  financing  and  leasing  assets  included  $1,501
million,  $1,046 million and $841 million related to the Dell, Snap-on and Avaya
programs, respectively. These amounts include receivables originated directly by
CIT as well as receivables  purchased from joint venture  entities.  Securitized
assets  included  $1,878  million,  $80 million and $743  million from the Dell,
Snap-on and Avaya  origination  sources,  respectively,  at June 30,  2003.  Any
significant  reduction in origination  volumes from any of these alliances could
have a material impact on our asset levels. For additional information regarding
certain  of  our  joint  venture  activities,   see  Note  7  --  Related  Party
Transactions.

Geographic Composition

      The following table summarizes state concentrations of 5.0% or greater and
foreign  concentrations  of 1.0% or greater of our owned  financing  and leasing
portfolio  assets at June 30, 2003 and December 31,  2002.  In each period,  our
managed asset geographic composition did not differ significantly from our owned
asset geographic composition.

                                                        June 30,    December 31,
                                                          2003          2002
                                                        --------    ------------
State
  California ................................            10.3%          9.8%
  Texas .....................................             7.6%          7.0%
  New York ..................................             7.3%          7.9%
Total U.S. ..................................            78.8%         79.3%

Country
  Canada ....................................             5.1%          5.0%
  England ...................................             3.3%          3.2%
  Australia .................................             1.2%          1.3%
  China .....................................             1.2%          1.2%
  Germany ...................................             1.1%          1.1%
  France ....................................              (1)          1.0%
  Brazil ....................................              (1)          1.1%
Total Outside U.S. ..........................            21.2%         20.7%

--------------------------------------------------------------------------------
(1)   The applicable balances are less than 1.0%.

Industry Composition

      At June 30,  2003,  our  commercial  aerospace  portfolio  in the  Capital
Finance  business  unit  consisted of financing  and leasing  assets of $4,479.2
million covering 203 aircraft. These loans had an average age of approximately 7
years (based on a dollar value weighted average).  The portfolio was spread over
83 accounts,  with the majority placed with major airlines around the world. The
commercial  aerospace  portfolio at December  31, 2002 was  $4,072.8  million of
financing  and  leasing  assets,  which  covered  194  aircraft  spread  over 78
accounts,  with a weighted  average age of approximately 7 years. The commercial
aircraft all comply with stage III noise regulations.


                                       34


      The following table summarizes the composition of the commercial aerospace
portfolio as of June 30, 2003 and December 31, 2002 ($ in millions):

                                 At June 30, 2003       At December 31, 2002
                              ---------------------  -------------------------
                                  Net     Number of      Net         Number of
                              Investment    Planes   Investment       Planes
                              ----------  --------   ----------      ---------
By Geography:
   Europe .................    $1,930.9        62      $1,506.5           51
   North America(1) .......     1,060.9        76       1,042.2           75
   Asia Pacific ...........       879.5        36         853.6           35
   Latin America ..........       536.2        25         595.9           29
   Africa/Middle East .....        71.7         4          74.6            4
                               --------       ---      --------          ---
Total .....................    $4,479.2       203      $4,072.8          194
                               ========       ===      ========          ===

By Manufacturer:
   Boeing .................    $2,607.9       140      $2,388.1          135
   Airbus .................     1,847.5        48       1,647.9           42
   Other ..................        23.8        15          36.8           17
                               --------       ---      --------          ---
Total .....................    $4,479.2       203      $4,072.8          194
                               ========       ===      ========          ===

By Body Type(2):
   Narrow .................    $3,218.7       152      $2,799.4          142
   Intermediate ...........       865.4        18         859.2           17
   Wide ...................       371.3        18         377.4           18
   Other ..................        23.8        15          36.8           17
                               --------       ---      --------          ---
Total .....................    $4,479.2       203      $4,072.8          194
                               ========       ===      ========          ===

--------------------------------------------------------------------------------
(1)   Comprised of net  investments in the U.S. and Canada of $871.6 million (70
      aircraft)  and $189.3  million (6  aircraft)  at June 30,  2003 and $832.7
      million (69  aircraft)  and $209.5  million (6  aircraft)  at December 31,
      2002.

(2)   Narrow body are single  aisle  design and consist  primarily of Boeing 737
      and 757 series and Airbus  A320  series  aircraft.  Intermediate  body are
      smaller twin aisle  design and consist  primarily of Boeing 767 series and
      Airbus A330  series  aircraft.  Wide body are large twin aisle  design and
      consist  primarily of Boeing 747 and 777 series and McDonnell Douglas DC10
      series aircraft.

      As of June 30, 2003, operating leases represented approximately 83% of the
portfolio,  with the remainder consisting of capital leases (including leveraged
leases) and loans.  Tax-optimization  leveraged  leases,  which  generally  have
increased risk for lessors in comparison to our other lease and leveraged  lease
structures,  were  approximately  $216 million at June 30, 2003. Total leveraged
leases,  including the tax optimization  structures  described above,  were $472
million or 11% of the aerospace portfolio at June 30, 2003. Of the 203 aircraft,
2 are off-lease,  1 of which has been  remarketed with leases pending as of June
30, 2003.

      The regional  aircraft  portfolio at June 30, 2003 consisted of 122 planes
and a net  investment of $316.9  million,  primarily in the  Structured  Finance
segment. The planes are primarily located in North America and Europe. Operating
leases  accounted for about 31% of the portfolio at June 30, 2003, with the rest
being capital  leases or loans.  There are 5 aircraft in this portfolio that are
off-lease.  At December 31, 2002, the regional aircraft  portfolio  consisted of
117 planes and a net investment of $344.0 million.

      The  following  is a list of CIT's  exposure to bankrupt  carriers and the
current status of related aircraft.

      o     National Airways -- On November 6, 2002, National Airways, which was
            operating in bankruptcy,  announced  that it would cease  operations
            effective  November 6, 2002. We have repossessed our two narrow-body
            Boeing 757  aircraft  previously  leased to  National  Airways,  and
            released  one during the  quarter  and have a lease  pending for the
            second aircraft.

      o     UAL Corp.  -- On December 9, 2002,  UAL Corp.,  the parent of United
            Airlines, announced its Chapter 11 bankruptcy filing. Under existing
            agreements,  United Airlines leases 4 CIT-owned narrow body aircraft
            (2 Boeing 757  aircraft and 2 Boeing 737  aircraft)  with a net book
            value of $91.2  million.  These  leases were  converted  from single
            investor  capital leases to short-term  operating  leases during the
            quarter ended March 31, 2003.

      o     Avianca Airlines -- Avianca  Airlines filed voluntary  petitions for
            re-organization  under  Chapter  11 of the U.S.  Bankruptcy  Code on
            Friday, March 21, 2003. Under existing agreements, CIT has operating
            leases


                                       35


            with Avianca  Airlines whereby it is the lessee of one MD 80 and one
            Boeing  757  aircraft,  both of which  are in the  process  of being
            restructured. Current net investment is $38.5 million.

      o     Air Canada -- Air Canada  filed for  protection  from  creditors  on
            April 1, 2003 under the Companies'  Creditors  Arrangement  Act, the
            Canadian  reorganization  law.  CIT's  exposure  in  aircraft to Air
            Canada is approximately USD $52 million,  primarily  relating to one
            Boeing 767 aircraft for which CIT has an  investment  in a leveraged
            lease (not a tax-optimized structure),  with a remaining term of six
            years and a $16.0 million loan  collateralized  by eight  Bombardier
            Dash 8  aircraft.  The  loan is  fully  guaranteed  by the  Canadian
            government.  CIT had a second 767  aircraft  that came  off-lease on
            June 1, 2003 and has been re-leased to another carrier.

      Additionally,   CIT  holds  Senior  A  tranche  Enhanced  Equipment  Trust
Certificates  (EETCs)  with a fair  value  of $41.5  million  issued  by  United
Airlines, which are debt instruments  collateralized by aircraft operated by the
airline.  In connection with United  Airlines' filing under Chapter 11, CIT is a
co-arranger  in a $1.2 billion  secured  revolving and term loan facility with a
commitment  of  $102.0  million.  This  debtor-in-possession  facility,  with an
outstanding  balance of $32.3  million at June 30,  2003,  is secured by,  among
other collateral, previously unencumbered aircraft. Future revenues and aircraft
values could be impacted by the actions of the  carriers,  management's  actions
with respect to  re-marketing  the aircraft,  airline  industry  performance and
aircraft utilization.

      The top five commercial  aerospace  exposures  totaled $1,024.0 million at
June 30,  2003,  the  largest of which was $292.5  million.  All are to carriers
outside  of the  U.S.  and the top  three  of these  exposures  are to  European
carriers.  The largest  exposure  to a U.S.  carrier at June 30, 2003 was $142.7
million.

      Our aerospace  assets  include both operating  leases and capital  leases.
Management  monitors economic conditions  affecting equipment values,  trends in
equipment values, and periodically  obtains third party appraisals of commercial
aerospace  equipment,  which  include  projected  rental  rates.  We adjust  the
depreciation  schedules of commercial aerospace equipment on operating leases or
residual values underlying capital leases,  when required.  Aerospace assets are
reviewed for  impairment  annually,  or more often when events or  circumstances
warrant.   An  aerospace   asset  is  considered   impaired  when  the  expected
undiscounted  cash flow over its expected  remaining  life is less than its book
value. Both historical information and current economic trends are factored into
the  assumptions and analyses used when  determining  the expected  undiscounted
cash flow. Included among these assumptions are the following:

      o     Lease terms

      o     Remaining life of the asset

      o     Lease rates supplied by independent appraisers

      o     Remarketing prospects

      o     Maintenance costs

      An  impairment  loss is  recognized  if the asset book value  exceeds  the
estimated fair value  determined  under the  aforementioned  cash flow analysis.
There were no recorded  impairment  charges related to the commercial  aerospace
assets during the quarter  ended June 30, 2003,  while $1.8 million was recorded
during the March 2003 quarter. Management remains comfortable with valuations of
the  commercial  aerospace  portfolio.  Utilization is good,  demonstrating  the
ability to place aircraft.  However,  these placements are at compressed  rental
rates,  which reflect  current market  conditions.  Generally,  leases are being
written for terms between three and five years.

      Our  telecommunications  portfolio is included in  "Communications" in the
industry  composition  table  included in Note 7 to the  Consolidated  Financial
Statements. This portfolio totals approximately $647.9 million at June 30, 2003,
or  approximately  1.7% of total  financing  and leasing  assets.  The portfolio
consists of 53 accounts with an average balance of approximately  $12.2 million.
The 10 largest  accounts in the  portfolio  aggregate  $262.7  million  with the
largest single account totaling $33.4 million.  Non-performing  accounts totaled
$94.2 million (10 accounts) or 14.5% of this portfolio.  The  telecommunications
portfolio includes CLECs, wireless and towers, with the largest group being CLEC
accounts,  which  totaled  $224.3  million,  or 34.6% of the  telecommunications
portfolio,  at June 30, 2003. At December 31, 2002, the portfolio totaled $710.1
million (approximately 2.0% of total financing and leasing assets) and consisted
of 52 accounts with an average balance of  approximately  $13.7 million.  The 10
largest  accounts in the portfolio  aggregated  $264.5  million with the largest
single account  totaling $32.9 million.  Non-performing  accounts totaled $120.2
million (10  accounts) or 16.9% of this  portfolio.  Many of these CLEC accounts
are still in the process


                                       36


of  building  out their  networks  and  developing  their  customer  bases.  Our
telecommunications transactions are collateralized by the assets of the customer
(equipment,  receivables, cash, etc.) and typically are also secured by a pledge
of the stock of  non-public  companies.  Weak economic  conditions  and industry
overcapacity  have driven down values in this sector. As discussed in "Provision
and Reserve for Credit Losses," $128.1 million of previously  recorded  reserves
remain for telecommunication  exposures.  As management continues to monitor and
work out the individual  accounts in this portfolio,  charge-offs will likely be
recorded  against this reserve in  subsequent  periods.  Weakness in this sector
could result in additional losses or require additional reserves.

      The  portfolio  of  direct  and  private  fund  venture   capital   equity
investments  totaled  $325.4  million  at June 30,  2003 and  $335.4  million at
December 31, 2002.  At June 30, 2003,  this  portfolio  was  comprised of direct
investments of  approximately  $169.1 million in 49 companies and $156.3 million
in 52 private equity funds.  Our direct  investments  totaled $188.8 million (57
companies) and our investment in private equity funds amounted to $146.6 million
(52 funds) as of  December  31,  2002.  These  investments  are  principally  in
emerging growth enterprises in selected industries, including industrial buyout,
information  technology,  life science and consumer products. In 2001, we ceased
making new  venture  capital  investments  beyond  existing  commitments,  which
totaled  approximately  $144.3  million at June 30,  2003 and $164.9  million at
December 31, 2002. These commitments,  which are mainly to private equity funds,
may or may not be drawn. Performance of both our direct investments and our fund
investments  will depend upon the performance of the underlying  companies,  and
public and private  market  valuations of these  companies.  During the quarters
ended June 30, 2003 and 2002,  we  recognized  losses of $12.1  million and $1.4
million  and for the six months  ended June 30,  2003 and 2002,  losses  totaled
$16.5 million and $6.7 million.

      At June 30, 2003, we had approximately  $168.1 million of loans and assets
outstanding to customers  located or doing  business in Argentina.  During 2002,
the Argentine government  instituted economic reforms,  including the conversion
of certain  dollar-denominated  loans into pesos.  Due to these  actions and the
weakness of the peso, we  established a reserve of $135.0  million  during 2002.
The underlying portfolio continues to perform as to collection, but payments are
now in pesos.  Collection efforts and discussions with the Argentine  government
continue  in order to  maximize  recovery  efforts.  Management  expects to seek
resolution in the coming  quarters and  charge-offs  are expected to be recorded
against the reserve as these activities are concluded.

      Management  strives to maximize the  profitability  of the operating lease
equipment portfolio by balancing equipment utilization levels with market rental
rates and lease terms.  Substantially  all such  equipment  was subject to lease
agreements throughout the first six months of 2003 and 2002. Total equipment not
subject to lease  agreements  was $293.9  million and $385.9 million at June 30,
2003 and December 31, 2002, respectively. The current weakness in the commercial
airline  industry and the slower  economy  could further  adversely  impact both
rental and utilization rates prospectively.

      See Note 5 -- Concentrations of Item 1. Consolidated  Financial Statements
for further discussion on concentrations.

Other Assets

      Other  assets  totaled  $4.9  billion at June 30, 2003 and $4.7 billion at
December 31, 2002, as both the total balance and the underlying  components were
essentially unchanged. Other assets primarily consisted of the following at June
30,  2003:  securitization  assets,  including  interest-only  strips,  retained
subordinated  securities,  cash reserve  accounts and  servicing  assets of $1.4
billion,  investments in and  receivables  from and related to  non-consolidated
subsidiaries of $0.9 billion,  accrued  interest and receivables from derivative
counterparties  of  $0.8  billion,   deposits  on  commercial  aerospace  flight
equipment of $0.3 billion,  direct and private fund equity  investments  of $0.3
billion,  repossessed  assets of $0.1 billion,  prepaid expenses of $0.1 billion
and investment in aerospace  securities of $0.1 billion.  The remaining  balance
includes furniture and fixtures, miscellaneous receivables and other assets.

Goodwill and Other Intangible Assets Impairment and Amortization

      The Company  periodically  reviews and  evaluates  its  goodwill and other
intangible  assets for  potential  impairment.  Effective  October 1, 2001,  the
Company  adopted  SFAS 142,  under  which  goodwill is no longer  amortized  but
instead is assessed for impairment at least  annually.  As part of the adoption,
the Company allocated its existing goodwill to each of our reporting units as of
October 1,  2001.  Under the  transition  provisions  of SFAS 142,  there was no
goodwill impairment as of October 1, 2001.


                                       37


      During  the  quarter  ended  March 31,  2002,  our  former  parent,  Tyco,
experienced disruptions to its business surrounding its announced break-up plan,
downgrades  in its  credit  ratings,  and a  significant  decline  in its market
capitalization. As a result of these events at Tyco, CIT also experienced credit
downgrades  and a disruption  to our funding base and ability to access  capital
markets.   Further,   market-based  information  used  in  connection  with  our
preliminary  consideration  of an  initial  public  offering  for  100%  of  CIT
indicated  that CIT's book value  exceeded its estimated  fair value as of March
31,  2002.  As a  result,  management  performed  a Step 1 SFAS  142  impairment
analysis  as of March 31,  2002 and  concluded  that an  impairment  charge  was
warranted at that date.

      Management's  objective in performing  the Step 1 SFAS 142 analysis was to
obtain  relevant  market-based  data to  calculate  the  fair  value of each CIT
reporting  unit as of March 31, 2002 based on each  reporting  unit's  projected
earnings  and  market  factors  that  would be used by  market  participants  in
ascribing value to each of these  reporting  units in the planned  separation of
CIT from Tyco.  Management  obtained  relevant  market  data from our  financial
advisors regarding the range of price to earnings multiples and market discounts
applicable to each  reporting  unit as of March 31, 2002 and applied this market
data to the individual  reporting  unit's  projected annual earnings as of March
31, 2002 to calculate a fair value of each reporting  unit. The fair values were
compared to the corresponding carrying value of each reporting unit at March 31,
2002, resulting in a $4.513 billion impairment charge as of March 31, 2002.

      SFAS 142 requires a second step analysis  whenever the reporting unit book
value exceeds its fair value.  This  analysis  required us to determine the fair
value of each reporting unit's individual assets and liabilities to complete the
analysis of goodwill  impairment as of March 31, 2002.  During the quarter ended
June 30, 2002, we completed this analysis for each reporting unit and determined
that an  additional  Step 2 goodwill  impairment  charge of $132.0  million  was
required based on reporting unit level valuation data.

      Subsequent to March 31, 2002, CIT  experienced  further credit  downgrades
and the business  environment and other factors  continued to negatively  impact
the expected CIT IPO  proceeds.  As a result,  we performed  both a Step 1 and a
Step 2 analysis as of June 30, 2002 in a manner  consistent  with the March 2002
process  described  above.  This  analysis  was based upon  market data from our
financial advisors regarding the individual  reporting units, and other relevant
market data at June 30, 2002 and through the period  immediately  following  the
IPO of the Company,  including the total amount of IPO  proceeds.  This analysis
resulted in Step 1 and Step 2 incremental  goodwill impairment charges of $1.719
billion  and  $148.0  million,  respectively,  as of June 30,  2002,  which were
recorded during the June 30, 2002 quarter.

      The changes in the  carrying  amount of goodwill  for the six months ended
June 30, 2003 were as follows ($ in millions):



                                        Specialty    Equipment   Capital   Commercial  Structured
                                         Finance      Finance    Finance     Finance     Finance      Total
                                        ---------    ---------   -------   ----------  ----------     -----
                                                                              
Balance as of December 31, 2002 ......    $ 14.0       $ --       $   --      $370.4      $   --      $384.4
Goodwill related to rail acquisition..        --         --          5.4          --          --         5.4
                                          ------       ----       ------      ------      ------      ------
Balance as of June 30, 2003 ..........    $ 14.0       $ --       $  5.4      $370.4      $   --      $389.8
                                          ======       ====       ======      ======      ======      ======


      The $5.4 million  increase to goodwill  during the quarter  ended June 30,
2003 relates to the  acquisition of an approximate  75% interest in Flex Leasing
Corporation  by Capital  Finance on April 8, 2003.  Flex,  which is based in San
Francisco,  California  and was  founded  in 1996,  leases  approximately  7,200
general-purpose railcars,  representing  approximately $410.0 million in assets,
to railroads and shippers in the U.S. and Canada. The Flex results of operations
from the date of  acquisition  through  June 30,  2003 are  included  in the CIT
consolidated  results and are not significant.  Minority interest related to the
Flex  acquisition  was $39.7  million at June 30,  2003 and is included in other
liabilities in the CIT consolidated balance sheet.

Results and Trends in Relation to the Prior Quarter

      The following analysis is provided in addition to the year-over-prior year
period  analysis  in order to  discuss  trends in our  business  in the  periods
subsequent to our July 2002 IPO.

                                       38


      Net income for the  quarter  ended June 30,  2003 was $136.9  million,  or
$0.65 per diluted share,  compared to $127.0 million, or $0.60 per diluted share
for the quarter ended March 31, 2003.  The table that follows  presents  results
for the quarters ended June 30, 2003 and March 31, 2003, both in amount and as a
percentage of AEA ($ in millions):



                                                               Quarter ended             Quarter ended
                                                               June 30, 2003             March 31, 2003
                                                          -----------------------       ------------------
                                                          Amount            % AEA       Amount       % AEA
                                                          ------            -----       ------       -----
                                                                                         
Finance income .....................................    $   943.2          10.57%     $   939.2      10.86%
Interest expense ...................................        331.1           3.71%         346.7       4.01%
                                                        ---------          -----      ---------      -----
Net finance income .................................        612.1           6.86%         592.5       6.85%
Depreciation on operating lease equipment ..........        272.9           3.06%         278.8       3.22%
                                                        ---------          -----      ---------      -----
Net finance margin .................................        339.2           3.80%         313.7       3.63%
Provision for credit losses ........................        100.6           1.13%         103.0       1.19%
                                                        ---------          -----      ---------      -----
Net finance margin after provision for credit losses        238.6           2.67%         210.7       2.44%
Other revenue ......................................        217.6           2.44%         235.5       2.72%
                                                        ---------          -----      ---------      -----
Operating margin ...................................        456.2           5.11%         446.2       5.16%
Salaries and general operating expenses ............        227.4           2.55%         233.6       2.70%
                                                        ---------          -----      ---------      -----

Income before provision for income taxes ...........        228.8           2.56%         212.6       2.46%
Provision for income taxes .........................        (89.2)         (1.00)%        (82.9)     (0.96)%
Minority interest in subsidiary trust holding
   solely debentures of the Company, after tax .....         (2.7)         (0.03)%         (2.7)     (0.03)%
                                                        ---------          -----      ---------
Net income .........................................    $   136.9           1.53%     $   127.0       1.47%
                                                        =========          =====      =========
Net income per share-- basic and diluted ...........    $    0.65                     $    0.60
                                                        =========                     =========
Average Earning Assets (AEA) .......................    $35,700.0                     $34,600.6
                                                        =========                     =========


      The  increase  in net  income  from the  prior  quarter  reflected  higher
interest margin, lower charge-offs and controlled expenses, partially off-set by
lower other revenue.

      Net finance  margin,  at 3.80% of average  earning  assets for the current
quarter,  increased  from  3.63%  during  the  prior  quarter.  The  improvement
primarily  reflects higher  yield-related  fees (9 basis points higher than last
quarter),  reduced excess  liquidity (4 basis points) and a shift in debt mix to
better match assets and liabilities (6 basis points).  Although  improving,  our
funding costs are still higher than  historical  levels.  The positive impact on
risk adjusted margin due to fair value  adjustments to mark finance  receivables
and debt to market  remaining from the Tyco  acquisition,  before the benefit of
refinancing  at better  rates,  declined to 13 basis points from 19 basis points
last quarter.

      Operating  lease  equipment  increased to $7,560.0  million from  $6,831.4
million at March 31, 2003 primarily due to large-ticket equipment in the Capital
Finance unit. The aerospace  portfolio  increased by approximately  $400 million
due to new fundings and the  conversion of capital  leases to operating  leases.
The rail portfolio  increased by  approximately  $400 million due to the current
quarter  acquisition.  The  decline  in  depreciation  expense  for the  quarter
reflects  a greater  proportion  of  aircraft  and rail  assets  with an average
depreciable life of 25 and 40 years, compared to smaller ticket asset lives of 3
years. Our depreciable  assets range from  smaller-ticket,  shorter-term  leases
(e.g. computers) to larger-ticket,  longer-term leases (e.g. commercial aircraft
and rail  assets).  Operating  lease  margin  (rental  income less  depreciation
expense) as a percentage of average  operating  lease  equipment was 5.9% during
the quarter ended June 30, 2003 versus 6.1% during the prior quarter, reflecting
continued pressure on aerospace rental rates.

      Total net  charge-offs  during the quarter ended June 30, 2003 were $108.4
million  (1.51%),   including  $11.3  million  of  telecommunication   loan  net
charge-offs,  compared to $114.3 million  (1.61%) during the quarter ended March
31,  2003.  The tables that follow  detail net  charge-offs  for the current and
prior quarters by segment, both in amount and as a percentage of average finance
receivables.  In  addition to total  amounts,  net  charge-offs  relating to the
liquidating  and  telecommunications  portfolios  are also  presented to provide
enhanced analysis ($ in millions):


                                       39




Net Charge-offs:                                    Quarter Ended June 30, 2003
                                   --------------------------------------------------------------
                                                      Before Liquidating and    Liquidating and
                                          Total         Telecommunications     Telecommunications
                                   -----------------  ----------------------   ------------------
                                                                        
Specialty Finance -- commercial..  $ 23.9      1.33%      $23.9     1.33%        $  --       --
Equipment Finance ...............    38.6      2.51%       26.1     1.82%         12.5    12.00%
Commercial Finance ..............    21.3      0.96%       18.6     0.84%          2.7    76.80%
Capital Finance .................      --        --          --       --            --       --
Structured Finance ..............     8.6      1.18%         --       --           8.6     5.38%
                                   ------                 -----                  -----
  Total Commercial Segments .....    92.4      1.40%       68.6     1.09%         23.8     8.87%
Specialty Finance -- consumer ...    16.0      2.62%        9.9     2.43%          6.1     3.01%
                                   ------                 -----                  -----
  Total .........................  $108.4      1.51%      $78.5     1.17%        $29.9     6.33%
                                   ======                 =====                  =====

Net Charge-offs:                                    Quarter Ended March 31, 2003
                                   --------------------------------------------------------------
                                                      Before Liquidating and    Liquidating and
                                          Total         Telecommunications     Telecommunications
                                   -----------------  ----------------------   ------------------
Specialty Finance -- commercial..  $ 31.0      1.73%      $30.6     1.76%        $ 0.4     8.65%
Equipment Finance ...............    38.1      2.39%       29.7     2.02%          8.4     6.48%
Commercial Finance ..............    16.6      0.80%       16.6     0.80%           --       --
Capital Finance .................     1.8      0.55%        1.8     0.55%           --       --
Structured Finance ..............    13.8      1.90%         --       --          13.8     8.23%
                                   ------                 -----                  -----
  Total Commercial Segments .....   101.3      1.55%       78.7     1.27%         22.6     7.48%
Specialty Finance -- consumer ...    13.0      2.36%        6.6     1.92%          6.4     3.09%
                                   ------                 -----                  -----
  Total .........................  $114.3      1.61%      $85.3     1.30%        $29.0     5.70%
                                   ======                 =====                  =====


      Total  telecommunications and liquidating charge-offs were up $0.9 million
from  last  quarter.  Charge-offs  in the  liquidating  franchise  and  trucking
portfolios  increased  while  telecommunication  related  charge-offs  declined.
Before  liquidating  portfolio  charge-offs  and  telecommunication  charge-offs
covered by specific  2002  reserving  actions,  charge-offs  were $78.5  million
(1.17% of average finance receivables) for the current quarter,  down from $85.3
million  (1.30%) last  quarter.  The  improvement  from last  quarter  primarily
reflects declines in both Specialty Finance -- commercial and Equipment Finance,
partially  offset by higher  Specialty  Finance  --  consumer  charge-offs  this
quarter,  which  included  higher  losses in home equity  loans.  The decline in
Specialty  Finance  --  commercial  is due to  lower  charge-offs  in the  small
business loan and lease portfolios that were transferred from Equipment  Finance
last quarter,  while the Equipment  Finance trend reflected lower charge-offs in
the construction and industrial equipment businesses.

      For the quarter ended June 30, 2003, Other Revenue totaled $217.6 million,
down from $235.5 million for the quarter ended March 31, 2003,  reflecting lower
fee income  mainly in the Specialty  Finance  Segment and an increase in venture
capital  investment  losses  due to the  continued  weak  economic  environment.
Securitization gains during the current quarter totaled $33.8 million,  14.8% of
pretax income, on volume of $1,653.0 million,  compared to $30.7 million,  14.4%
of pretax income,  on volume of $1,237.0  million during the prior quarter.  The
components  of  Other  Revenue  are  set  forth  in the  following  table  ($ in
millions):

                                                        Quarter Ended
                                                  -------------------------
                                                  June 30,        March 31,
                                                    2003            2003
                                                  --------        ---------
Fees and other income........................      $134.6          $144.7
Factoring commissions........................        44.8            46.9
Gains on securitizations.....................        33.8            30.7
Gains on sales of leasing equipment..........        16.5            17.6
Loss on venture capital investments..........       (12.1)           (4.4)
                                                   ------          ------
  Total......................................      $217.6          $235.5
                                                   ======          ======

      The  reduction  of  fees  and  other  income   reflected   write-downs  of
securitization retained interests.  Salaries and general operating expenses were
$227.4 million for the current quarter,  compared to $233.6 million reported for
the March 31, 2003  quarter.  The  decrease  from last  quarter  included  lower
repossession   and  collection   expenses  and  reduced  costs  associated  with
securitization facilities. Salaries and general operating expenses were 1.99% of
average  managed  assets during the quarter,  versus 2.08% for the prior quarter
due to the combination of lower expenses and higher asset levels. The efficiency
ratio for the  quarter  (salaries  and  general  operating  expenses


                                       40


divided by operating margin,  excluding provision for credit losses) improved to
40.8% as  compared to 42.5% in the prior  quarter,  reflecting  lower  operating
expenses and higher revenues.  Headcount was unchanged at 5,845 at both June 30,
2003 and March 31, 2003.

Risk Management

      We performed  additional risk management  procedures in 2002 and into 2003
in light of the factors  discussed  previously in the "Key Business  Initiatives
and Trends"  section.  Our ongoing  risk  management  activities,  beyond  these
special liquidity and capital measures, are described more fully in the sections
that follow.  Our  business  activities  involve  various  elements of risk.  We
consider  the  principal  types of risk to be  credit  risk  (including  credit,
collateral and equipment risk) and market risk (including interest rate, foreign
currency and liquidity risk.)

      We consider the  management of risk essential to conducting our commercial
and consumer businesses and to maintaining profitability.  Accordingly, our risk
management systems and procedures are designed to identify and analyze risks, to
set appropriate  policies and limits and to continually  monitor these risks and
limits by means of reliable  administrative  and  information  systems and other
policies and programs.

      We review and monitor  credit  exposures,  both owned and  managed,  on an
ongoing basis to identify,  as early as possible,  those  customers  that may be
experiencing   declining   creditworthiness   or   financial   difficulty,   and
periodically evaluate our finance receivables across the entire organization. We
monitor  concentrations by borrower,  industry,  geographic region and equipment
type,  and we adjust  limits  as  conditions  warrant  to  minimize  the risk of
substantial credit loss. We have maintained a standard practice of reviewing our
aerospace  portfolio  regularly and, in accordance with SFAS No. 13 and SFAS No.
144, we test for asset  impairment  based upon projected cash flows and relevant
market data, with any impairment in value charged to operating  earnings.  Given
the developments in the aerospace sector during 2002 and into 2003, performance,
profitability  and residual  values  relating to aerospace  assets were reviewed
more frequently with the Executive Credit Committee.

      Our Asset  Quality  Review  Committee  is  comprised  of members of senior
management,  including the Chief Risk Officer,  the Chief Financial Officer, the
Controller and the Director of Credit Audit.  Periodically,  the Committee meets
with senior executives of our strategic business units and corporate credit risk
management  group to  review  portfolio  performance,  including  the  status of
individual  financing and leasing  assets,  owned and managed,  to obligors with
higher risk profiles.  In addition,  this committee  periodically meets with the
Chief  Executive  Officer  of CIT  to  review  overall  credit  risk,  including
geographic,  industry  and customer  concentrations,  and the reserve for credit
losses.

Credit Risk Management

      We have developed systems  specifically  designed to manage credit risk in
each of our business  segments.  We evaluate  financing  and leasing  assets for
credit and collateral risk during the credit granting  process and  periodically
after the  advancement of funds.  The Corporate  Credit Risk  Management  group,
which  reports to the Chief Risk  Officer,  oversees  and  manages  credit  risk
throughout CIT. This group includes senior credit  executives  aligned with each
of the business units, as well as a senior executive with  corporate-wide  asset
recovery  and  workout  responsibilities.  In  addition,  our  Executive  Credit
Committee,  which includes the Chief Executive Officer,  the Chief Risk Officer,
members of the Corporate  Credit Risk Management group and group Chief Executive
Officers,  approves large  transactions  and  transactions  which are outside of
established  target market  definitions  and risk  acceptance  criteria or which
exceed the strategic business units' credit authority. The Corporate Credit Risk
Management group also includes an independent credit audit function.

      Each of our  strategic  business  units has  developed  and  implemented a
formal credit  management  process in accordance with formal uniform  guidelines
established by the credit risk management group. These guidelines set forth risk
acceptance criteria for:

      o     acceptable maximum credit lines;

      o     selected target markets and products;

      o     creditworthiness of borrowers,  including credit history,  financial
            condition,  adequacy of cash flow, financial performance and quality
            of management; and

      o     the  type  and  value  of  underlying   collateral   and  guarantees
            (including recourse from dealers and manufacturers).


                                       41


      Compliance  with  established  corporate  policies and  procedures and the
credit management  processes at each strategic business unit are reviewed by the
credit audit group.  The credit audit group examines  adherence with established
credit  policies and procedures and tests for  inappropriate  credit  practices,
including  whether potential problem accounts are being detected and reported on
a timely basis.

Commercial

      The commercial credit management  process (other than small ticket leasing
transactions)  starts with the initial  evaluation of credit risk and underlying
collateral at the time of origination and continues over the life of the finance
receivable  or  operating  lease,  including  collecting  past due  balances and
liquidating underlying collateral.

      Credit personnel  review each potential  borrower's  financial  condition,
results  of  operations,   management,   industry,  customer  base,  operations,
collateral  and other data,  such as third party credit  reports,  to thoroughly
evaluate the customer's  borrowing and repayment  ability.  Borrowers are graded
according to credit quality based upon our uniform credit grading system,  which
considers both the borrower's financial condition and the underlying collateral.
Credit facilities are subject to approval within our overall credit approval and
underwriting  guidelines and are issued  commensurate with the credit evaluation
performed on each borrower.

Consumer and Small Ticket Leasing

      For consumer transactions and small-ticket leasing transactions, we employ
proprietary  automated  credit  scoring  models by loan type that  include  both
customer demographics and credit bureau characteristics. The profiles emphasize,
among other things, occupancy status, length of residence, length of employment,
debt to income ratio (ratio of total  installment  debt and housing  expenses to
gross monthly income),  bank account  references,  credit bureau information and
combined  loan to  value  ratio.  The  models  are used to  assess  a  potential
borrower's  credit  standing  and  repayment  ability  considering  the value or
adequacy of property offered as collateral. Our credit criteria include reliance
on credit  scores,  including  those  based upon both our  proprietary  internal
credit scoring model and external credit bureau scoring, combined with judgment.
The credit scoring  models are regularly  reviewed for  effectiveness  utilizing
statistical tools.

      We regularly  evaluate the consumer  loan  portfolio  and the small ticket
leasing  portfolio using past due, vintage curve and other  statistical tools to
analyze  trends  and credit  performance  by loan type,  including  analysis  of
specific credit  characteristics  and other selected  subsets of the portfolios.
Adjustments  to credit  scorecards  and  lending  programs  are made when deemed
appropriate.  Individual  underwriters  are assigned credit authority based upon
their experience, performance and understanding of the underwriting policies and
procedures  of our  consumer  and  small-ticket  leasing  operations.  A  credit
approval   hierarchy  also  exists  to  ensure  that  an  underwriter  with  the
appropriate level of authority reviews all applications.

Equipment/Residual Risk Management

      We have developed systems, processes and expertise to manage the equipment
and  residual  risk in our  commercial  segments.  Our  process  consists of the
following:  1) setting residual value at deal inception;  2) systematic residual
reviews; and 3) monitoring of residual realizations.  Reviews for impairment are
performed  at  least  annually.  Residual  realizations,  by  business  unit and
product, are reviewed as part of our ongoing financial and asset quality review,
both within the business units and by senior management.

Market Risk Management

      Market  risk  is the  risk of loss  arising  from  changes  in  values  of
financial  instruments,  including  interest rate risk,  foreign  exchange risk,
derivative  credit risk and  liquidity  risk. We engage in  transactions  in the
normal course of business that expose us to market risks.  However,  we maintain
what we believe are appropriate  management  practices and policies  designed to
effectively  mitigate such risks.  The objectives of our market risk  management
efforts are to preserve  company value by hedging changes in future expected net
cash flows and to decrease the cost of capital.  Strategies for managing  market
risks  associated with changes in interest rates and foreign  exchange rates are
an integral  part of the process,  because  those  strategies  affect our future
expected cash flows as well as our cost of capital.


                                       42


      Our Capital Committee sets policies, oversees and guides the interest rate
and currency risk management process, including the establishment and monitoring
of risk metrics,  and ensures the implementation of those policies.  Other risks
monitored by the Capital Committee include  derivative credit risk and liquidity
risk. The Capital Committee meets  periodically and includes the Chief Executive
Officer,  the Chief Financial Officer, the Treasurer,  and the Controller,  with
business unit executives serving on a rotating basis.

Interest Rate and Foreign Exchange Risk Management

      We offer a variety of financing products to our customers, including fixed
and floating-rate loans of various maturities and currency denominations,  and a
variety of leases, including operating leases. Changes in market interest rates,
relationships  between  short-term  and  long-term  market  interest  rates,  or
relationships  between  different  interest rate indices (i.e.,  basis risk) can
affect the interest rates charged on  interest-earning  assets  differently than
the interest rates paid on  interest-bearing  liabilities,  and can result in an
increase  in  interest  expense  relative  to finance  income.  We  measure  our
asset/liability  position  in  economic  terms  through  duration  measures  and
sensitivity  analysis,  and we periodically measure the effect on earnings using
maturity gap analysis.

      A  matched  asset/liability  position  is  generally  achieved  through  a
combination of financial  instruments,  including commercial paper,  medium-term
notes,  long-term  debt,  interest  rate and currency  swaps,  foreign  exchange
contracts, and through asset syndication and securitization. We do not speculate
on interest  rates or foreign  exchange  rates,  but rather seek to mitigate the
possible  impact of such rate  fluctuations  encountered in the normal course of
business.  This process is ongoing due to prepayments,  refinancings  and actual
payments varying from contractual terms, as well as other portfolio dynamics.

      We  periodically  enter into  structured  financings  (involving  both the
issuance of debt and an interest rate swap with corresponding notional principal
amount and  maturity) to manage  liquidity  and reduce  interest  rate risk at a
lower overall funding cost than could be achieved by solely issuing debt.

      CIT uses  derivatives  for hedging  purposes only, and does not enter into
derivative financial instruments for trading or speculative purposes. As part of
managing the exposure to changes in market interest rates,  CIT, as an end-user,
enters into various  interest  rate swap  transactions  in the  over-the-counter
markets, with other financial  institutions acting as principal  counterparties.
To ensure both  appropriate use as a hedge and hedge accounting  treatment,  all
derivatives entered into are designated according to a hedge objective against a
specified  liability,  including  long-term  debt, bank credit  facilities,  and
commercial  paper.  CIT's primary  hedge  objectives  include the  conversion of
variable-rate  liabilities  to fixed rates,  and the  conversion  of  fixed-rate
liabilities  to  variable  rates.  The  notional  amounts,  rates,  indices  and
maturities of CIT's  derivatives are required to closely match the related terms
of CIT's hedged liabilities.

      We target to match the basis of assets with that of our liabilities  (i.e.
fixed rate assets  funded with fixed rate  liabilities  and floating rate assets
funded with floating  rate  liabilities),  while also  targeting to preserve the
economic  returns of our assets through duration  matching.  Interest rate swaps
are an effective  means of achieving our target  matched  funding  objectives by
converting debt to the desired basis and duration.

      Interest  rate swaps with  notional  principal  amounts of $9.2 billion at
June 30,  2003 and $9.0  billion  at March 31,  2003 were  designated  as hedges
against  outstanding  debt.  The net increase in notional  principal  amounts of
interest rate swaps as of June 30, 2003 consisted of a $1,188.5 million increase
in fixed to  floating-rate  swaps  (fair value  hedges)  and a $1,031.5  million
decrease in floating to  fixed-rate  swaps (cash flow  hedges).  The increase in
fair value hedges was due to the $500 million  fixed rate note issued during the
quarter which was swapped to float,  with the  remaining  increase due to retail
fixed issuances  being swapped to float.  The decline in the cash flow hedges is
the result of maturities during the quarter. In addition,  CIT enters into hedge
transactions in conjunction with its securitization  programs. See Note 3 to the
Consolidated Financial Statements for further details.

      The  following  table   summarizes  the  composition  of  our  assets  and
liabilities before and after swaps at June 30 and March 31, 2003:



                                                         Before Swaps                 After Swaps
                                                  --------------------------    -------------------------
                                                  Fixed Rate   Floating Rate    Fixed Rate  Floating Rate
                                                  ----------   -------------    ----------  -------------
                   June 30, 2003
                                                                                     
Assets.........................................       52%           48%             52%          48%
Liabilities....................................       65%           35%             53%          47%

                  March 31, 2003

Assets.........................................       51%           49%             51%          49%
Liabilities....................................       62%           38%             55%          45%



                                       43


      A comparative  analysis of the weighted average principal  outstanding and
interest rates on our debt before and after the effect of interest rate swaps is
shown in the following table ($ in millions):



                                                                       Quarter Ended June 30, 2003
                                                           -------------------------------------------------
                                                                 Before Swaps               After Swaps
                                                           ----------------------      ---------------------
                                                                                           
Commercial paper and variable rate senior notes and bank
  credit facilities..................................      $12,030.2        1.90%      $15,646.8       2.72%
Fixed rate senior and subordinated notes.............       20,284.9        6.13%       16,668.3       5.93%
                                                           ---------                   ---------
Composite............................................      $32,315.1        4.56%      $32,315.1       4.37%
                                                           =========                   =========

                                                                     Quarter Ended March 31, 2003
                                                           -------------------------------------------------
                                                                 Before Swaps               After Swaps
                                                           ----------------------      ---------------------
Commercial paper and variable rate senior notes and bank
  credit facilities..................................      $12,704.5        1.94%      $14,751.9       2.80%
Fixed rate senior and subordinated notes.............       19,695.7        6.32%       17,648.3       6.10%
                                                           ---------                   ---------
Composite............................................      $32,400.2        4.61%      $32,400.2       4.60%
                                                           =========                   =========

                                                                      Quarter Ended June 30, 2002
                                                           -------------------------------------------------
                                                                 Before Swaps               After Swaps
                                                           ----------------------      ---------------------
Commercial paper and variable rate senior notes and bank
  credit facilities..................................      $16,056.8        2.25%      $13,942.2       2.46%
Fixed rate senior and subordinated notes.............       17,822.6        6.08%       19,937.2       5.98%
                                                           ---------                   ---------
Composite............................................      $33,879.4        4.27%      $33,879.4       4.53%
                                                           =========                   =========

                                                                    Six Months Ended June 30, 2003
                                                           -------------------------------------------------
                                                                 Before Swaps               After Swaps
                                                           ----------------------      ---------------------
Commercial paper and variable rate senior notes and bank
  credit facilities..................................      $12,367.3        1.92%      $15,159.1       2.75%
Fixed rate senior and subordinated notes.............       19,990.3        6.23%       17,198.5       6.02%
                                                           ---------                   ---------
Composite............................................      $32,357.6        4.58%      $32,357.6       4.49%
                                                           =========                   =========

                                                                     Six Months Ended June 30, 2002
                                                           -------------------------------------------------
                                                                 Before Swaps               After Swaps
                                                           ----------------------      ---------------------
Commercial paper and variable rate senior notes and bank
  credit facilities..................................      $17,678.4        2.19%      $14,933.1       2.34%
Fixed rate senior and subordinated notes.............       16,827.5        5.85%       19,572.8       5.83%
                                                           ---------                   ---------
Composite............................................      $34,505.9        3.97%      $34,505.9       4.32%
                                                           =========                   =========


      The  weighted  average  interest  rates  before  swaps do not  necessarily
reflect the interest  expense that would have been incurred over the life of the
borrowings  had we chosen to manage  interest  rate risk without the use of such
swaps.  Derivatives  are  discussed  further in Note 3 --  Derivative  Financial
Instruments to the Consolidated Financial Statements.

      We regularly  monitor and simulate through computer modeling our degree of
interest  rate  sensitivity  by  measuring  the  re-pricing  characteristics  of
interest-sensitive assets, liabilities,  and derivatives.  The Capital Committee
reviews the results of this modeling periodically. The interest rate sensitivity
modeling  techniques  employed by us include the creation of prospective  twelve
month "baseline" and "rate shocked" net interest income simulations.

      At the date that  interest rate  sensitivity  is modeled,  "baseline"  net
interest income is derived  considering the current level of  interest-sensitive
assets and related run-off (including both contractual  repayment and historical
prepayment experience), the current level of interest-sensitive  liabilities and
related  maturities  and  the  current  level  of  derivatives.  The  "baseline"
simulation assumes that, over the next successive twelve months, market interest
rates (as of the date of simulation)  are held constant and that no new loans or
leases are extended.  Once the  "baseline"  net interest  income is  calculated,
market interest rates, which were previously held constant, are raised 100 basis
points  instantaneously  and parallel across the entire yield curve, and a "rate
shocked"  simulation is run.  Interest rate  sensitivity is then measured as the
difference between calculated "baseline" and "rate shocked" net interest income.


                                       44


      An immediate  hypothetical  100 basis point increase in the yield curve on
July 1, 2003 would have reduced net income by an estimated $15 million after tax
over the next  twelve  months,  while a decrease  in the yield  curve would have
increased net income by a like amount.  Although  management  believes that this
measure provides a meaningful estimate of our interest rate sensitivity, it does
not account for potential changes in the credit quality,  size,  composition and
prepayment  characteristics of the balance sheet and other business developments
that could affect net income. Accordingly, no assurance can be given that actual
results would not differ  materially from the potential outcome simulated by our
computer  modeling.  Further,  it does not  necessarily  represent  management's
current view of future market interest rate movements.

      We also  utilize  foreign  currency  exchange  forward  contracts to hedge
currency risk  underlying our net  investments  in foreign  operations and cross
currency  interest  rate swaps to hedge both foreign  currency and interest rate
risk  underlying  foreign  debt.  At June 30,  2003,  CIT was  party to  foreign
currency  exchange forward contracts with notional amounts totaling $2.4 billion
and  maturities  ranging from 2003 to 2006. CIT was also party to cross currency
interest rate swaps with notional  amounts  totaling $1.4 billion and maturities
ranging from 2003 to 2027. At March 31, 2003, CIT was party to foreign  currency
exchange forward contracts with notional amounts totaling $2.7 billion.  CIT was
also party to cross currency  interest rate swaps with notional amounts totaling
$1.4  billion.  At June 30,  2002,  CIT was party to $3.4  billion  in  notional
principal amount of foreign currency exchange forward contracts and $2.0 billion
in notional  principal  amount of cross currency  swaps that were  designated as
currency-related  debt hedges.  Translation  gains and losses of the  underlying
foreign net  investment,  as well as offsetting  derivative  gains and losses on
designated  hedges,  are  reflected  in  other   comprehensive   income  in  the
Consolidated Balance Sheet.

Derivative Risk Management

      We enter  into  interest  rate and  currency  swaps and  foreign  exchange
forward  contracts as part of our overall market risk management  practices.  We
assess  and  manage  the  external  and  internal  risks  associated  with these
derivative   instruments  in  accordance   with  the  overall   operating  goals
established  by our Capital  Committee.  External risk is defined as those risks
outside of our direct control,  including  counterparty  credit risk,  liquidity
risk,  systemic risk, legal risk and market risk. Internal risk relates to those
operational risks within the management oversight structure and includes actions
taken in contravention of CIT policy.

      The primary external risk of derivative instruments is counterparty credit
exposure,  which is defined  as the  ability of a  counterparty  to perform  its
financial obligations under a derivative contract. We control the credit risk of
our derivative agreements through counterparty credit approvals, pre-established
exposure limits and monitoring procedures.

      The Capital Committee approves each counterparty and establishes  exposure
limits based on credit analysis and market value. All derivative  agreements are
entered into with major money center  financial  institutions  rated  investment
grade  by  nationally  recognized  rating  agencies,  with the  majority  of our
counterparties rated "AA" or better.  Credit exposures are measured based on the
market value of outstanding derivative instruments. Exposures are calculated for
each derivative contract to monitor counterparty credit exposure.

Liquidity Risk Management

      Liquidity  risk refers to the risk of CIT being  unable to meet  potential
cash  outflows  promptly and cost  effectively.  Factors that could cause such a
risk to arise might be a disruption  of a  securities  market or other source of
funds. We actively manage and mitigate liquidity risk by maintaining diversified
sources of funding  and  committed  alternate  sources of  funding.  The primary
funding  sources  are  commercial   paper  (U.S.),   long-term  debt  (U.S.  and
International) and asset-backed  securities (U.S. and Canada).  Included as part
of our  securitization  programs are  committed  asset-backed  commercial  paper
programs in the U.S. and Canada. We also maintain committed bank lines of credit
to provide  backstop support of commercial paper borrowings and local bank lines
to support our  international  operations.  Additional  sources of liquidity are
loan  and  lease  payments  from  customers,  whole-loan  asset  sales  and loan
syndications.

      We also  target and  monitor  certain  liquidity  metrics to ensure both a
balanced liability profile and adequate alternate liquidity availability.  Among
the target ratios are maximum  percentage  of  outstanding  commercial  paper to
total debt,  minimum  percentage of committed  bank line coverage to outstanding
commercial  paper and  minimum  percentage  of  alternate  liquidity  sources to
current cash obligations.

Liquidity

      The  commercial  paper  program  closed the  quarter at $4.6  billion,  up
slightly from $4.5 billion at March 31, 2003.  The drop in  outstanding  balance
from December corresponded with the emphasis on term funding during the quarter.
Our targeted program size remains at $5.0 billion and our goal is to maintain at
least 100% back-up liquidity.


                                       45


      During the quarter,  previously drawn bank facilities were completely paid
down from $1.3 billion at March 31, 2003. At June 30, 2003, we had undrawn total
bank credit  facilities of $6,270.0  million.  Accordingly,  backstop  liquidity
coverage of outstanding commercial paper was in excess of 100% at June 30, 2003.
In April 2003, a $765.0 million  undrawn  facility  expired and was not renewed.
Our  remaining  facilities  include a $3,720.0  million  facility,  undrawn  and
available,  which expires March 2005, and two other  facilities  expiring during
October 2003.

      In addition to the commercial  paper  markets,  CIT accesses the unsecured
term debt markets. CIT maintains registration statements with the Securities and
Exchange  Commission covering debt securities that it may sell in the future. At
June 30, 2003, we had $17.0 billion of registered, but unissued, debt securities
available  under a shelf  registration  statement.  Term-debt  issued during the
quarter ended June 30, 2003  consisted of a $0.5 billion  five-year,  fixed-rate
global issue and $1.0 billion in  variable-rate  medium-term  notes. In November
2002, we introduced a retail note program,  in which we offer senior,  unsecured
notes utilizing numerous broker-dealers for placement to retail accounts. During
the quarter,  we issued $340.0 million under this program.  As of June 30, 2003,
we had issued $1.8  billion of notes under this  program  having  maturities  of
between 2 and 10 years.

      To further strengthen our funding capabilities, we maintain committed
asset backed facilities, which cover a range of assets from equipment to
consumer home equity receivables, and trade accounts receivable. While these
facilities are predominately in the U.S., we also maintain facilities for
Canadian domiciled assets. As of June 30, 2003, we had approximately $2.8
billion of availability in our committed asset-backed facilities and $2.6
billion of registered, but unissued, securities available under public shelf
registration statements relating to our asset-backed securitization program.
Securitization volume was $1.7 billion, compared to $1.2 billion last quarter.

      Our credit ratings are shown for June 30, 2003, December 31, 2002 and June
30, 2002 in the following table:



                                       At June 30, 2003        At December 31, 2002        At June 30, 2002
                                   -----------------------   ------------------------   -----------------------
                                   Short Term    Long Term   Short Term     Long Term   Short Term    Long Term
                                   ----------    ---------   ----------     ---------   ----------    ---------
                                                                                       
Moody's........................        P-1          A2           P-1           A2           P-1           A2
Standard & Poor's..............        A-1          A            A-1           A            A-2          BBB+
Fitch..........................         F1          A            F1            A            F2           BBB


--------------------------------------------------------------------------------
The credit  ratings stated above are not a  recommendation  to buy, sell or hold
securities and may be subject to revision or withdrawal by the assigning  rating
organization. Each rating should be evaluated independently of any other rating.

      We have some material covenants within our legal documents that govern our
funding sources.  The most  significant  covenant in CIT's indentures and credit
agreements is a negative pledge  provision,  which limits granting or permitting
liens on our assets,  but provides for  exceptions for certain  ordinary  course
liens needed to operate our business.  Various credit  agreements also contain a
minimum net worth test of $3.75 billion.

      The following tables summarize various contractual  obligations,  selected
contractual  cash  receipts  and  contractual  commitments  as of June 30, 2003.
Projected proceeds from the sale of operating lease equipment,  interest revenue
from finance receivables,  debt interest expense and other items are excluded ($
in millions):



                                                              Payments and Collections by Period
                                         -------------------------------------------------------------------------
                                                      Remaining                                           After
Contractual Obligations                    Total         2003        2004          2005         2006       2006
-----------------------                  ---------    ---------    ---------    ---------    ---------   ---------
                                                                                       
Commercial Paper ....................    $ 4,576.7    $ 4,576.7    $      --    $      --    $      --   $      --
Variable-rate term debt .............      6,637.3      1,980.2      3,531.4        833.3         35.3       257.1
Fixed-rate term debt ................     21,216.8      2,785.6      3,324.8      4,201.1      2,299.9     8,605.4
Lease rental expense ................        188.2         32.1         46.6         37.9         27.0        44.6
                                         ---------    ---------    ---------    ---------    ---------   ---------
   Total contractual obligations ....     32,619.0      9,374.6      6,902.8      5,072.3      2,362.2     8,907.1
                                         ---------    ---------    ---------    ---------    ---------   ---------
Finance receivables (1) .............     28,413.6      7,955.1      4,554.8      4,141.2      2,542.8     9,219.7
Operating lease rental income .......      3,171.7        642.9        860.4        550.5        339.4       778.5
Finance receivables held for sale (2)      1,210.0      1,210.0           --           --           --          --
Cash -- current balance .............      1,423.3      1,423.3           --           --           --          --
                                         ---------    ---------    ---------    ---------    ---------   ---------
   Total projected cash availability      34,218.6     11,231.3      5,415.2      4,691.7      2,882.2     9,998.2
                                         ---------    ---------    ---------    ---------    ---------   ---------
Net projected cash inflow (outflow) .    $ 1,599.6    $ 1,856.7    $(1,487.6)   $  (380.6)   $   520.0   $ 1,091.1
                                         =========    =========    =========    =========    =========   =========



--------------------------------------------------------------------------------
(1)   Based upon contractual cash flows; amount could differ due to prepayments,
      charge-offs and other factors.

(2)   Based upon management's intent to sell rather than contractual  maturities
      of underlying assets.


                                       46




                                                                Commitment Expiration by Period
                                                ---------------------------------------------------------------
                                                           Remaining                                     After
Contractual Commitments                           Total      2003        2004       2005      2006       2006
-----------------------                         ---------  ---------   --------   --------  --------   --------
                                                                                     
Aircraft purchases.........................     $3,286.0   $  318.0    $  788.0   $1,248.0  $  840.0   $   92.0
Credit extensions..........................      4,032.0    1,212.1       859.5      713.5     555.4      691.5
Letters of credit..........................      1,152.3    1,136.0        15.1        0.4       0.3        0.5
Sale-leaseback payments....................        494.7        8.3        28.5       28.5      28.5      400.9
Manufacturer purchase commitments..........        253.5      253.5          --         --        --         --
Venture capital fund and
  equity commitments.......................        149.2        0.2         2.5        0.4       3.7      142.4
Guarantees.................................         69.0       69.0          --         --        --         --
Acceptances................................         12.1       12.1          --         --        --         --
                                                 -------    -------    --------    -------  --------   --------
Total Commitments..........................     $9,448.8   $3,009.2    $1,693.6   $1,990.8  $1,427.9   $1,327.3
                                                ========   ========    ========   ========  ========   ========


      See the "-- Overview" and "-- Net Finance Margin" sections for information
regarding  the impact of our  liquidity  and  capitalization  plan on results of
operations.

Capitalization

      The following table presents  information  regarding our capital structure
($ in millions):

                                                        June 30,    December 31,
                                                         2003           2002
                                                      ---------      ---------
Commercial paper .................................    $ 4,576.7      $ 4,974.6
Bank credit facilities ...........................           --        2,118.0
Term debt ........................................     27,854.1       24,588.7
Company-obligated mandatorily redeemable
  preferred securities of subsidiary
  trust holding solely debentures of the
  Company ("Preferred Capital Securities") .......        256.4          257.2
Stockholders' equity(1) ..........................      5,171.8        4,968.5
                                                      ---------      ---------
Total capitalization .............................     37,859.0       36,907.0
Goodwill .........................................       (389.8)        (384.4)
                                                      ---------      ---------
Total tangible capitalization ....................    $37,469.2      $36,522.6
                                                      =========      =========
Total tangible stockholders' equity ..............    $ 4,782.0      $ 4,584.1
                                                      =========      =========
Tangible stockholders' equity(1) and
  Preferred Capital Securities to
  managed assets .................................        10.53%         10.44%
Total debt (excluding overnight deposits)
  to tangible stockholders' equity(1)
  and Preferred Capital Securities ...............        6.28x          6.22x

--------------------------------------------------------------------------------
(1)   Stockholders'  equity for these  calculations  excludes  accumulated other
      comprehensive  loss  relating  to  derivative  financial  instruments  and
      unrealized  gains on  equity  and  securitization  investments  of  $114.2
      million  and  $97.8  million  at June 30,  2003  and  December  31,  2002,
      respectively,  as these losses and gains are not necessarily indicative of
      amounts which will be realized.

      The  Company-obligated  mandatorily  redeemable  preferred  securities are
7.70%  Preferred  Capital  Securities  issued in 1997 by CIT Capital  Trust I, a
wholly-owned subsidiary. CIT Capital Trust I invested the proceeds of that issue
in Junior  Subordinated  Debentures  of CIT having  identical  rates and payment
dates.

      See "Liquidity  Risk  Management"  for  discussion of risks  impacting our
liquidity and capitalization.

Securitization and Joint Venture Activities

      We utilize  special purpose  entities  ("SPE's") and joint ventures in the
normal  course of business to execute  securitization  transactions  and conduct
business in key vendor relationships.

      Securitization  Transactions  -- SPE's  are used to  achieve  "true  sale"
requirements for these transactions in accordance with SFAS No. 140, "Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishment   of
Liabilities."  Pools of assets are  originated  or  acquired  and sold to SPE's,
which in turn issue debt  securities to investors  solely backed by asset pools.
Accordingly,  CIT has no legal  obligations to repay the securities in the event
of a default by the SPE. CIT retains the servicing  rights and  participates  in
certain  cash flows of the pools.  The


                                       47


present  value of expected  net cash flows that  exceeds the  estimated  cost of
servicing  is  recorded  in  other  assets  as  a  "retained  interest."  Assets
securitized  are shown in our managed  assets and our  capitalization  ratios on
managed assets.  Under the recently issued rules relating to  consolidation  and
SPE's,  non-qualifying  securitization  entities  will have to be  consolidated.
Based  on our  preliminary  analysis,  we  believe  that  all  of  our  existing
asset-backed SPE structures meet the definition of a qualifying  special purpose
entity ("QSPE") as defined by SFAS 140 and will therefore continue to qualify as
off-balance sheet transactions. As part of these related activities, the Company
enters  into hedge  transactions  with the trusts  (SPE) in order to protect the
trust against  interest rate risk. CIT insulates its associated risk by entering
into  offsetting  swap  transactions  with third  parties.  The net effect is to
protect the trust and CIT from interest rate risk. The notional  amount of these
swaps was $3.5 billion at June 30, 2003. During 2003, we successfully  completed
a consent  solicitation to amend the negative pledge  provision in our 1994 debt
indenture.  This action conforms the 1994 debt indenture to our other agreements
and provides  flexibility in structuring our securitizations as accounting sales
or secured financings.

      Joint  Ventures  --  We  utilize  joint  ventures  to  conduct   financing
activities with certain strategic vendor partners. Receivables are originated by
the joint venture and  purchased by CIT. The vendor  partner and CIT jointly own
these distinct legal entities, and there is no third-party debt involved.  These
arrangements are accounted for using the equity method,  with profits and losses
distributed  according  to the joint  venture  agreement.  See  related  FIN 46,
"Consolidation  of Variable  Interest  Entities"  discussion in "Accounting  and
Technical   Pronouncements"   and   disclosure   in  Note  7  --  Related  Party
Transactions.

Critical Accounting Policies

      The  preparation of financial  statements in conformity with GAAP requires
management  to use  judgment in making  estimates  and  assumptions  that affect
reported  amounts of assets and liabilities and disclosure of contingent  assets
and liabilities at the date of the financial statements and the reported amounts
of income and expenses  during the reporting  period.  The following  accounting
policies  include  inherent  risks and  uncertainties  related to judgments  and
assumptions made by management. Management's estimates are based on the relevant
information available at the end of each period.

      Investments  --  Investments,  for  which  the  Company  does not have the
ability to exercise  significant  influence and for which there is not a readily
determinable  market  value,  the majority of which are venture  capital  equity
investments,  are accounted for under the cost method.  Management uses judgment
in determining when an unrealized loss is deemed to be other than temporary,  in
which case such loss is charged to earnings. As of June 30, 2003, the balance of
venture  capital equity  investments  was $325.4  million.  A 10% fluctuation in
value of venture capital investments equates to $0.09 in earnings per share.

      Charge-off  of Finance  Receivables  -- Finance  receivables  are reviewed
periodically to determine the  probability of loss.  Charge-offs are taken after
substantial  collection  efforts are conducted,  considering such factors as the
borrower's  financial  condition  and the  value of  underlying  collateral  and
guarantees (including recourse to dealers and manufacturers).

      Impaired Loans -- Loan impairment is defined as any shortfall  between the
estimated  value and the recorded  investment  in the loan,  with the  estimated
value determined using the fair value of the collateral and other cash flows, if
the loan is collateral  dependent,  or the present value of expected future cash
flows  discounted at the loan's  effective  interest rate. The  determination of
impairment involves management's judgement and the use of market and third party
estimates regarding collateral values. Valuations in the level of impaired loans
and  corresponding  impairment as defined under SFAS 114 affect the level of the
reserve for credit losses.

      Reserve for Credit Losses -- Our consolidated reserve for credit losses is
periodically  reviewed for adequacy  based on  portfolio  collateral  values and
credit quality indicators,  including charge-off experience,  levels of past due
loans     and     non-performing     assets,     evaluation     of     portfolio
diversification/concentration   and  economic  conditions.   We  review  finance
receivables  periodically  to  determine  the  probability  of loss,  and record
charge-offs  after  considering  such factors as  delinquencies,  the  financial
condition  of obligors,  the value of  underlying  collateral,  as well as third
party credit  enhancements  such as guarantees and recourse from  manufacturers.
This  information  is  reviewed  formally  on  a  quarterly  basis  with  senior
management,  including the CEO,  CFO,  Chief Risk Officer and  Controller  among
others, in conjunction with setting the reserve for credit losses.

      The reserve for credit losses is set and recorded based on the development
of three key components (1) specific  reserves for  collateral  dependent  loans
which are impaired under SFAS 114, (2) reserves for estimated losses inherent in
the portfolio based upon historical and projected credit trends and, (3) general
reserves for


                                       48


estimation  risk. The process involves the use of estimates and a high degree of
management  judgement.  As of June 30, 2003,  the reserve for credit  losses was
$754.9  million  or  2.66%  of  finance   receivables  and  81.5%  of  past  due
receivables.  A $10.0 million change in the reserve for credit losses equates to
the following variances: 4 basis points (0.04%) in the percentage of reserves to
finance  receivables;  108 basis points (1.08%) in the percentage of reserves to
past due receivables and $0.03 in earnings per share.

      Retained   Interests   in   Securitizations   --   Significant   financial
assumptions,  including loan pool credit losses,  prepayment speeds and discount
rates, are utilized to determine the fair values of retained interests,  both at
the date of the  securitization  and in the subsequent  quarterly  valuations of
retained  interests.  Any resulting losses,  representing the excess of carrying
value over estimated fair value, are recorded against current earnings. However,
unrealized  gains  are  reflected  in  stockholders'  equity  as part  of  other
comprehensive income.

      Lease Residual Values -- Operating lease equipment is carried at cost less
accumulated  depreciation  and is depreciated to estimated  residual value using
the straight-line  method over the lease term or projected  economic life of the
asset.  Direct  financing  leases are recorded at the aggregated  future minimum
lease payments plus estimated  residual values less unearned finance income.  We
generally  bear greater risk in operating  lease  transactions  (versus  finance
lease transactions) as the duration of an operating lease is shorter relative to
the equipment useful life. Management performs periodic reviews of the estimated
residual values, with non-temporary impairment recognized in the current period.
As of June 30, 2003, our direct  financing  lease residual  balance was $2,448.0
million and our operating lease  equipment  balance was $7,560.0  million.  A 10
basis points (0.1%)  fluctuation in the total of these amounts  equates to $0.03
in earnings per share.

      Goodwill  -- CIT  adopted  SFAS No. 142,  "Goodwill  and Other  Intangible
Assets,"  effective  October 1, 2001,  the  beginning of CIT's fiscal 2002.  The
Company  determined at October 1, 2001 that there was no impact of adopting this
new standard  under the transition  provisions of SFAS No. 142. Since  adoption,
goodwill is no longer amortized,  but instead will be assessed for impairment at
least annually. During this assessment, management relies on a number of factors
including operating results,  business plans, economic projections,  anticipated
future cash flows,  and market place data. See "-- Goodwill and Other Intangible
Assets Amortization" for a discussion of our impairment  analysis.  Goodwill was
$389.8  million at June 30,  2003.  A 10%  fluctuation  in the value of goodwill
equates to $0.18 in earnings per share.

Accounting and Technical Pronouncements

      In  December  2002,  the  FASB  issued  SFAS  No.  148,   "Accounting  for
Stock-Based  Compensation  -- Transition  and  Disclosure."  This  pronouncement
amends SFAS No. 123 to provide  alternative  methods of transition for an entity
that  voluntarily  changes  to the fair  value-based  method of  accounting  for
stock-based compensation.  SFAS No. 148 also expands the disclosure requirements
with respect to stock-based  compensation.  CIT does not intend to change to the
fair value method of accounting. The required expanded disclosure is included in
the June 30, 2003 financial statements and notes thereto.

      In November  2002,  the FASB issued FIN 45,  "Guarantor's  Accounting  and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  of  Others."  FIN 45  requires a guarantor  to  recognize,  at the
inception  of a  guarantee,  a  liability  for the fair value of the  obligation
undertaken in issuing certain guarantees.  The expanded disclosure  requirements
are required for financial  statements ending after December 15, 2002, while the
liability  recognition  provisions are  applicable to all guarantee  obligations
modified or issued after December 31, 2002. The liability  recognition provision
and expanded  disclosure are included in our June 30, 2003 financial  statements
and notes thereto.

      In January 2003, the FASB issued FIN 46, which requires the  consolidation
of VIEs by their primary  beneficiaries if they do not effectively  disperse the
risks among the parties  involved.  VIEs are  certain  entities in which  equity
investors do not have the characteristics of a controlling financial interest or
do not have  sufficient  equity at risk for the entity to finance its activities
without  additional  subordinated  financial  support  from other  parties.  The
primary  beneficiary  is the entity that has the majority of the economic  risks
and  rewards of  ownership  of the VIE.  See Note 1 --  Summary  of  Significant
Accounting Policies for additional  information  regarding the implementation of
FIN 46.

      The FIN 46 potential impact to CIT is primarily  related to three types of
transactions:  1) strategic vendor partner joint ventures,  2)  securitizations,
and  3)  selected   financing  and  private   equity   transactions.   Based  on
interpretations of FIN 46 currently available,  we believe the implementation of
this  standard will not change the current  equity method of accounting  for our
strategic vendor partner joint ventures (see Note 7 - Related Party


                                       49



Transactions). Our securitization transactions outstanding at June 30, 2003 will
continue to qualify as off-balance sheet transactions. The Company may structure
certain future  securitization  transactions,  including factoring trade account
receivables transactions, as on-balance sheet financings.  Certain VIEs acquired
primarily  in  conjunction   with  selected   financing  and/or  private  equity
transactions will be consolidated under FIN 46. However,  we anticipate that the
consolidation  of  these  entities  will not have a  significant  impact  on our
financial  position or results of  operations.  Due to the complexity of the new
guidance  and  evolving  interpretations  among  accounting  professionals,  the
Company will consider such further  guidance,  if any, and assess the accounting
and disclosure impact of FIN 46 on its VIEs.

      In April 2003, the FASB issued SFAS No. 149 "Amendment of Statement 133 on
Derivative  Instruments and Hedging  Activities." This pronouncement  amends and
clarifies financial accounting and reporting for certain derivative instruments,
including  certain  derivative  instruments  embedded in other  contracts.  This
pronouncement is effective for all contracts entered into or modified after June
30,  2003.  The  implementation  of  SFAS  No.  149 is not  expected  to  have a
significant impact on our financial position or results of operations.

      In May  2003,  the  FASB  issued  SFAS No.  150  "Accounting  for  Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
pronouncement  establishes  standards  for  classifying  and  measuring  certain
financial  instruments as a liability (or an asset in some circumstances).  This
pronouncement  will  require CIT to display the "Company  obligated  mandatorily
redeemable preferred securities of subsidiary trust holding solely debentures of
the  Company"  within  the  liability  section  on the face of the  consolidated
balance sheet and show the related  expense,  with interest expense on a pre-tax
basis.  There will be no impact to net income upon adoption.  This pronouncement
is effective for financial  instruments  entered into or modified  after May 31,
2003,  and otherwise is effective at the  beginning of the first interim  period
beginning after June 15, 2003. Prior period restatement is not permitted.

Statistical Data

      The following table presents components of net income as a percent of AEA,
along with other selected financial data ($ in millions):

                                                           Six Months Ended
                                                                June 30,
                                                       ------------------------
                                                          2003          2002
                                                       ----------    ----------
Finance income.....................................        10.70%        12.14%
Interest expense...................................         3.85%         4.10%
                                                       ---------     ---------
  Net finance income...............................         6.85%         8.04%
Depreciation on operating lease equipment..........         3.14%         3.46%
                                                       ---------     ---------
  Net finance margin...............................         3.71%         4.58%
Provision for credit losses........................         1.16%         3.15%
                                                       ---------     ---------
Net finance margin, after provision
  for credit losses................................         2.55%         1.43%
Other revenue......................................         2.58%         2.73%
                                                       ---------     ---------
Operating margin...................................         5.13%         4.16%
                                                       ---------     ---------
Salaries and general operating expenses............         2.62%         2.69%
Goodwill impairment................................           --         37.14%
Interest expense-- TCH.............................           --          3.34%
                                                       ---------     ---------
Operating expenses.................................         2.62%        43.17%
                                                       ---------     ---------
Income (loss) before income taxes..................         2.51%       (39.01)%
Provision for income taxes.........................        (0.98)%       (0.98)%
Minority interest in subsidiary trust
  holding solely debentures of the Company.........        (0.03)%       (0.03)%
                                                       ---------     ---------
  Net income (loss)................................         1.50%       (40.02)%
                                                       =========     =========
Average earning assets.............................    $35,194.8     $35,069.7
                                                       =========     =========

Forward-Looking Statements

      Certain  statements   contained  in  this  document  are  "forward-looking
statements" within the meaning of the U.S. Private Securities  Litigation Reform
Act of 1995. All statements  contained herein that are not clearly historical in
nature are  forward-looking  and the words  "anticipate,"  "believe,"  "expect,"
"estimate"  and  similar   expressions   are  generally   intended  to  identify
forward-looking  statements. Any forward-looking statements


                                       50


contained herein, in press releases, written statements or other documents filed
with the Securities and Exchange Commission or in communications and discussions
with investors and analysts in the normal course of business  through  meetings,
webcasts, phone calls and conference calls, concerning our operations,  economic
performance  and  financial  condition  are subject to known and unknown  risks,
uncertainties and contingencies.  Forward-looking  statements are included,  for
example, in the discussions about:

      o     our liquidity risk management,

      o     our credit risk management,

      o     our asset/liability risk management,

      o     our capital, leverage and credit ratings,

      o     our operational and legal risks,

      o     our commitments to extend credit or purchase equipment, and

      o     how we may be affected by legal proceedings.

      All  forward-looking  statements involve risks and uncertainties,  many of
which are beyond our control,  which may cause actual  results,  performance  or
achievements  to differ  materially  from  anticipated  results,  performance or
achievements.  Also,  forward-looking  statements  are based  upon  management's
estimates  of  fair  values  and of  future  costs,  using  currently  available
information.   Therefore,  actual  results  may  differ  materially  from  those
expressed  or  implied  in those  statements.  Factors  that  could  cause  such
differences include, but are not limited to:

      o     risks of economic slowdown, downturn or recession,

      o     industry cycles and trends,

      o     risks  inherent  in changes  in market  interest  rates and  quality
            spreads,

      o     funding opportunities and borrowing costs,

      o     changes in funding markets,  including  commercial  paper, term debt
            and the asset-backed securitization markets,

      o     uncertainties  associated with risk  management,  including  credit,
            prepayment, asset/liability, interest rate and currency risks,

      o     adequacy of reserves for credit losses,

      o     risks  associated  with  the  value  and  recoverability  of  leased
            equipment and lease residual values,

      o     changes  in  laws  or   regulations   governing   our  business  and
            operations,

      o     changes in competitive factors, and

      o     future   acquisitions   and  dispositions  of  businesses  or  asset
            portfolios.

Item 4. Controls and Procedures

      Within 90 days  before  filing this  report,  the  Company  evaluated  the
effectiveness  of the  design  and  operation  of its  disclosure  controls  and
procedures.  The Company's  disclosure  controls and  procedures are designed to
ensure that the information  that the Company must disclose in its reports filed
under the  Securities  Exchange Act of 1934 is  communicated  and processed in a
timely manner.  Albert R. Gamper,  Jr., Chairman,  President and Chief Executive
Officer,  and Joseph M. Leone,  Executive  Vice  President  and Chief  Financial
Officer, participated in this evaluation.

      Based on this evaluation,  Messrs.  Gamper and Leone concluded that, as of
the date of their evaluation,  the Company's  disclosure controls and procedures
were  effective,  except as noted in the next  paragraph.  Since the date of the
evaluation  described above, there have not been any significant  changes in the
Company's internal controls or in other factors that could significantly  affect
those controls.

      During our fiscal 2002 financial reporting process,  management,  with the
Company's independent accountants,  identified a deficiency in our tax financial
reporting  process  relating  to the  calculation  of  deferred  tax  assets and
liabilities   which   constitutes  a  "Reportable   Condition"  under  standards
established  by  the  American   Institute  of  Certified  Public   Accountants.
Management  believes  that this  matter has not had any  material  impact on our
financial  statements.  Management  has  established  a  project  plan  and  has
completed the design of processes and controls to address this  deficiency.  The
development phase is ongoing and includes process and control  refinements.  The
project  initiatives  have recently been expanded to include  historic tax basis
data  gathering and quality  control  review.  The  significant  aspects of this
project will be completed in 2003.


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                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

      On April 10, 2003, a putative class action lawsuit, asserting claims under
the Securities  Act of 1933,  was filed in the United States  District Court for
the Southern  District of New York against CIT, its Chief Executive  Officer and
its  Chief  Financial  Officer.   The  lawsuit  contains  allegations  that  the
registration  statement and prospectus prepared and filed in connection with the
IPO were  materially  false and  misleading,  principally  with  respect  to the
adequacy of CIT's telecommunications-related loan loss reserves at the time. The
lawsuit  purports to have been brought on behalf of all those who  purchased CIT
common  stock in or  traceable  to the  IPO,  and  seeks,  among  other  relief,
unspecified damages or rescission for those alleged class members who still hold
CIT stock and unspecified  damages for other alleged class members.  On June 25,
2003, by order of the United States District Court, the lawsuit was consolidated
with five other  substantially  similar suits, all of which had been filed after
April 10, 2003,  and  Glickenhaus & Co., a privately held  investment  firm, was
named lead plaintiff. One such suit named as defendants some of the underwriters
and former directors of CIT . In addition to the foregoing, two derivative suits
arising out of the same facts and  circumstances  have been brought  against CIT
and some of its present and former directors.

      CIT believes  that the  allegations  in each of these  actions are without
merit and that its disclosures were proper,  complete and accurate.  CIT intends
to vigorously defend itself against these actions.

      In addition,  in the ordinary course of business,  there are various legal
proceedings   pending  against  CIT.  Management  believes  that  the  aggregate
liabilities,  if any, arising from such actions, including the class action suit
above,  will not have a material  adverse effect on the  consolidated  financial
position, results of operations or liquidity of CIT.

Item 4. Submission of Matters to a Vote of Security Holders

      The annual meeting of stockholders was held on May 28, 2003. The following
table  includes  individuals,  comprising  all of the directors of CIT, who were
elected to the Board of Directors, each with the number of votes shown, to serve
until the next annual  meeting of  stockholders,  or until  succeeded by another
qualified director who has been elected, along with all other proposals and vote
tallies:



 Proposal                                                                        Votes
    No.             Description                              Votes For      Withheld/Against     Abstain
 --------           -----------                              ---------      ----------------     -------
                                                                                    
    1.    Election of Directors:
          Albert R. Gamper, Jr.                             196,782,961        1,198,123
          John S. Chen                                      190,869,332        7,111,762
          William A. Farlinger                              197,120,871          860,213
          Hon. Thomas H. Kean                               190,863,183        7,117,901
          Edward J. Kelly, III                              197,128,024          853,060
          Marianne Miller Parrs                             197,127,577          853,507
          Peter J. Tobin                                    197,123,820          857,264
          Lois M. Van Deusen                                190,858,972        7,122,112
    2.    Ratification of Independent Accountants           196,216,650        2,794,485            26,904
    3.    Approval of Long-Term Equity Compensation
          Plan, as amended                                  151,489,348       24,589,543         1,159,828
    4.    Approval of Annual Bonus Plan                     180,013,473       17,880,963         1,143,603
    5.    Approval of Employee Stock Purchase Plan          173,967,572        2,158,457         1,112,690


      Note:  Proposals 3 and 5 required  specific voting  instructions  from the
beneficial owners pursuant to NYSE requirements.

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Item 6. Exhibits and Reports on Form 8-K

     (a)          Exhibits

             3.1  Second Restated Certificate of Incorporation of the Company.

             3.2  Amended and Restated By-laws of the Company.

             4.1  Indenture  dated as of August 26,  2002 by and among CIT Group
                  Inc.,  Bank One Trust  Company,  N.A., as Trustee and Bank One
                  NA,  London   Branch,   as  London  Paying  Agent  and  London
                  Calculation   Agent,   for  the  issuance  of  unsecured   and
                  unsubordinated  debt securities  (incorporated by reference to
                  Exhibit 4.18 to Form 10-K filed by CIT on February 26, 2003).

            10.1  Employment Agreement for Jeffrey M. Peek, dated as of July 22,
                  2003.

            10.2  Amendment to Employment  Agreement for Albert R. Gamper,  Jr.,
                  dated as of July 22, 2003.

            12.1  CIT Group Inc.  and  Subsidiaries  Computation  of Earnings to
                  Fixed Charges.

            31.1  Certification of Albert R. Gamper, Jr. pursuant to Section 302
                  of the Sarbanes-Oxley Act of 2002.

            31.2  Certification  of Joseph M. Leone  pursuant  to Section 302 of
                  the Sarbanes-Oxley Act of 2002.

            32.1  Certification  of Albert R. Gamper,  Jr. pursuant to 18 U.S.C.
                  Section  1350,  as  adopted  pursuant  to  Section  906 of the
                  Sarbanes-Oxley Act of 2002.

            32.2  Certification of Joseph M. Leone pursuant to 18 U.S.C. Section
                  1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act of 2002.

     (b)          Reports on Form 8-K

                  Current Report on Form 8-K dated March 25, 2003, reporting the
                  financing relationship of CIT with Avianca Airlines.

                  Current Report on Form 8-K dated April 3, 2003,  reporting the
                  financing relationship of CIT with Air Canada.

                  Current  Report on Form 8-K dated  April 10,  2003,  reporting
                  that a punitive class action lawsuit,  asserting  claims under
                  the  Securities  Act of 1933,  was filed in the United  States
                  District Court for the Southern District of New York,  against
                  CIT,  its Chief  Executive  Officer  and its  Chief  Financial
                  Officer.

                  Current Report on Form 8-K dated April 24, 2003, reporting the
                  financial results of CIT as of and for the quarter ended March
                  31, 2003.


                                       53


                                   SIGNATURES

      Pursuant to the  requirements of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                            CIT GROUP INC.

                            By:              /s/ Joseph M. Leone
                               .................................................
                                                Joseph M. Leone
                               Executive Vice President, Chief Financial Officer
                                       and Principal Accounting Officer

August 12, 2003

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