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

                                    Form 10-K

            [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended December 31, 2004

                                       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                              (IRS Employer
of incorporation or organization)                        Identification No.)

1211 Avenue of the Americas, New York, New York                       10036
  (Address of principal executive offices)                          (Zip Code)

        Registrant's telephone number including area code: (212) 536-1211
                                   ----------
           Securities registered pursuant to Section 12(b) of the Act:

                                                          Name of each exchange
         Title of each class                               on which registered
         -------------------                              ---------------------
Common Stock, par value $0.01 per share............     New York Stock Exchange
5 7/8% Notes due October 15, 2008..................     New York Stock Exchange

           Securities registered pursuant to Section 12(g) of the Act:

                                      None

      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 Act of 1934. Yes |X| No [_].

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation  S-K (229.405 of this Chapter) is not  contained  herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o

      The aggregate  market value of voting common stock held by  non-affiliates
of the registrant,  based on the New York Stock Exchange  Composite  Transaction
closing  price of Common Stock ($38.29 per share,  210,700,091  shares of common
stock  outstanding),  which occurred on June 30, 2004, was  $8,067,706,484.  For
purposes of this  computation,  all officers and directors of the registrant are
deemed to be  affiliates.  Such  determination  shall not be deemed an admission
that such officers and directors are, in fact, affiliates of the registrant.  At
February 15, 2005, 210,851,464 shares of CIT's common stock, par value $0.01 per
share, were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      List here under the following  documents if  incorporated by reference and
the Part of the Form 10-K (e.g.,  Part I, Part II, etc.) into which the document
is  incorporated:  (1) Any annual report to security  holders;  (2) Any proxy or
information statement;  and (3) Any prospectus filed pursuant to Rule 424 (b) or
(c) under the  Securities Act of 1933.  The listed  documents  should be clearly
described for identification  purposes (e.g.,  annual report to security holders
for fiscal year ended December 24, 1980).

      Portions of the registrant's  definitive  proxy statement  relating to the
2005 Annual Meeting of Stockholders  are incorporated by reference into Part III
hereof to the extent described herein.

                   See pages 105 to 107 for the exhibit index.
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                                TABLE OF CONTENTS

Form 10-K
Item No.                          Name of Item                              Page
--------                          ------------                              ----
                                     Part I
Item 1.  Business .........................................................    1
Item 2.  Properties .......................................................    9
Item 3.  Legal Proceedings ................................................    9
Item 4.  Submission of Matters to a Vote of Security Holders ..............   10

                                     Part II
Item 5.  Market for Registrant's Common Equity and
           Related Stockholder Matters ....................................   11
Item 6.  Selected Financial Data ..........................................   13
Item 7.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations ............................   14
Item 7A. Quantitative and Qualitative Disclosure about
           Market Risk ....................................................   14
Item 8.  Financial Statements and Supplementary Data ......................   52
Item 9.  Changes in and Disagreements with Accountants on
           Accounting and Financial Disclosure ............................  102
Item 9A. Controls and Procedures ..........................................  102
Item 9B. Other Information ................................................  103

                                    Part III
Item 10. Directors and Executive Officers of the Registrant ...............  104
Item 11. Executive Compensation ...........................................  104
Item 12. Security Ownership of Certain Beneficial
           Owners and Management ..........................................  104
Item 13. Certain Relationships and Related Transactions ...................  104
Item 14. Principal Accountant Fees and Services ...........................  104

                                     Part IV
Item 15. Exhibits, Financial Statement Schedules
           and Reports on Form 8-K ........................................  105

Signatures ................................................................  108
Where You Can Find More Information .......................................  109


                                        i


                                     PART I

Item 1. Business

OVERVIEW

      CIT Group Inc., a Delaware corporation ("we," "CIT" or the "Company"),  is
a leading global  commercial and consumer finance  company.  Founded in 1908, we
provide  financing  and  leasing  capital  for  companies  in a wide  variety of
industries,  including many of today's leading  industries and growing  economic
sectors. We offer vendor, equipment, commercial,  factoring, home lending, small
business, educational lending and structured financing products.

      We have broad  access to  customers  and markets  through our  "franchise"
businesses  and sales force  organizations.  Each  business  focuses on specific
industries,  asset types, products and markets,  with portfolios  diversified by
client, industry and geography.  Managed assets, including assets securitized by
us, were $53.5 billion.  Owned  financing and leasing assets were $45.2 billion.
Stockholders' equity was $6.1 billion at December 31, 2004.

      We  provide a wide  range of  financing  and  leasing  products  to small,
midsize and larger  companies  across a wide  variety of  industries,  including
manufacturing,  retailing, transportation,  aerospace, construction, technology,
communication,  and various  service-related  industries.  Our secured  lending,
leasing and  factoring  products  include  direct  loans and  leases,  operating
leases,  leveraged and single investor leases, secured revolving lines of credit
and term loans, credit protection,  accounts receivable  collection,  import and
export financing, debtor-in-possession and turnaround financing, and acquisition
and expansion  financing.  Consumer lending consists primarily of first mortgage
lending  to  consumers  originated  largely  through a network  of  brokers  and
correspondents.  In February 2005, we began to offer student  lending  products,
the majority of which are backed by the U.S. government.

      Transactions are generated  through direct calling efforts with borrowers,
lessees,  equipment  end-users,  vendors,  manufacturers  and  distributors  and
through referral sources and other  intermediaries.  In addition,  our strategic
business units work together both in referring  transactions  to other CIT units
and by combining various products and structures to meet our customers'  overall
financing  needs.  We also buy and sell  participations  in and  syndications of
finance  receivables  and/or lines of credit.  From time to time,  in the normal
course of  business,  we  purchase  finance  receivables  on a  wholesale  basis
(commonly called bulk portfolio  purchases) which add to our origination volume.
We also sell certain finance receivables and equipment under operating leases to
reduce  concentration risk, for other balance sheet management  purposes,  or to
improve profitability.

      See page 7 for a glossary of key terms used by management in our business.

Business Segments

      We conduct our operations through two strategic groups,  comprised of five
business  segments  that market  products and services to satisfy the  financing
needs of specific customers, industries, vendors/manufacturers, and markets. Our
segment  reporting was modified in two ways in 2004.  First,  in order to better
align with the  market  place and  improve  efficiency,  the  former  Structured
Finance  segment  was  merged  with  Capital  Finance,  and at the same time the
telecommunications  and media portfolio was moved to the Business Credit unit of
Commercial Finance.  Secondly, our Specialty Finance -- consumer unit was broken
out as a  separate  segment.  All prior  periods  have been  restated  for these
changes and this  updated  presentation  is  consistent  with the  reporting  to
management during 2004.

      In the third  quarter of 2004,  we hired a senior  executive to manage our
"commercial finance" businesses,  which are comprised of the Commercial Finance,
Equipment Finance and Capital Finance segments.  As a result,  the Office of the
Chairman  includes two senior executives (Vice Chairman -- Specialty Finance and
Vice Chairman -- Commercial Finance) who have the day-to-day  responsibility for
business operations across the Company.

      Traditionally,  our business structure was primarily  product-focused.  We
began the  transition to an  industry-focused  structure  with the creation of a
healthcare "vertical" in the fourth quarter of 2004 in order to offer directly a
complete  array of products  and  services to this  industry  (as opposed to the
traditional product-based


                                       1


approach). A communications,  media and entertainment vertical unit is currently
being developed and we have additional  plans for the re-design of more business
units in the Commercial  Finance  strategic  group  featuring  complete  product
offerings to a specific  industry.  We believe that this approach  positions the
Company to more effectively and efficiently offer  enterprise-wide  solutions to
customers.

      Our five business segments are as follows:

            Specialty Finance (strategic group)
            -----------------------------------

            o     Specialty Finance -- commercial  (segment) -- vendor programs,
                  small-ticket   commercial  lending  and  leasing,  U.S.  Small
                  Business  Administration  loans and  liquidating  manufactured
                  housing assets.

            o     Specialty  Finance -- consumer  (segment)  -- home lending and
                  other  loans to  consumers,  including  loans  retained by CIT
                  Bank, a Utah industrial loan corporation. In February 2005, we
                  began  to  offer  student  lending  products  (primarily  U.S.
                  government guaranteed).

            Commercial Finance (strategic group)
            ------------------------------------

            o     Commercial   Finance   (segment)   --  mid-  to   large-ticket
                  asset-based and enterprise  value lending  (Business  Credit),
                  and factoring (Commercial Services);

            o     Equipment  Finance  (segment) --  diversified,  middle  market
                  equipment lending and leasing;

            o     Capital  Finance  (segment) -- commercial  aircraft,  rail and
                  other  large-ticket  equipment  leasing and  lending,  project
                  finance and advisory services.

      The  following  table  summarizes  the managed  assets  (excluding  equity
investments),  financing and leasing assets and returns of our business segments
at December 31, 2004 ($ in billions):



                                                                        Returns by Segment
                                                                        ------------------
                                                          Financing &     Net        %
                                       Managed Assets   Leasing Assets   Income    of AEA
                                       --------------   --------------   ------    ------

                                                                 
Specialty Finance -- commercial ..     $15.4    28.9%   $11.2    24.9%   $268.3    2.55%
Specialty Finance -- consumer ....       6.6    12.4%     5.4    12.0%     48.9    1.26%
                                       -----   -----    -----   -----    ------
   Specialty Finance -- strategic
     group .......................      22.0    41.3%    16.6    36.9%    317.2    2.21%
                                       -----   -----    -----   -----    ------
Commercial Finance ...............      11.8    22.1%    11.8    26.2%    295.5    3.58%
Equipment Finance ................       9.8    18.4%     6.9    15.3%     77.7    1.12%
Capital Finance ..................       9.7    18.2%     9.7    21.6%    105.0    1.14%
                                       -----   -----    -----   -----    ------
   Commercial Finance -- strategic
     group .......................      31.3    58.7%    28.4    63.1%    478.2    1.96%
                                       -----   -----    -----   -----    ------
   Total .........................     $53.3   100.0%   $45.0   100.0%   $795.4    2.05%
                                       =====   =====    =====   =====    ======



                                       2


Specialty Finance -- commercial Segment

      The Specialty  Finance -- commercial  segment financing and leasing assets
include  vendor  programs,  small/mid-ticket  commercial  financing  and leasing
assets,  loans  guaranteed  by  the  U.S.  Small  Business   Administration  and
liquidating manufactured housing assets.

      Specialty  Finance  forms  global   relationships  with   industry-leading
equipment vendors, including manufacturers, dealers and distributors, to deliver
customized  asset-based  sales and financing  solutions to both  commercial  and
consumer  customers  of the  vendor in a wide  array of vendor  programs.  These
alliances allow our vendor partners to focus on their core competencies,  reduce
capital needs and drive  incremental  sales volume. As a part of these programs,
we offer (i) credit  financing  to the  manufacturer's  commercial  and consumer
customers  for the purchase or lease of the  manufacturer's  products,  and (ii)
enhanced  sales tools to  manufacturers  and vendors,  such as asset  management
services,   efficient  loan  processing  and  real-time   credit   adjudication.
Higher-level partnership programs provide integration with the vendor's business
planning process and product  offering  systems to improve  execution and reduce
cycle times.  Specialty  Finance has significant  vendor programs in information
technology  and  telecommunications  equipment and serves many other  industries
through its global network.

      These vendor alliances feature traditional vendor finance programs,  joint
ventures,   profit  sharing  and  other   transaction   structures  with  large,
sales-oriented vendor partners. In the case of joint ventures, Specialty Finance
and the vendor combine financing activities through a distinct legal entity that
is jointly owned.  Generally,  Specialty Finance accounts for these arrangements
on an equity basis, with profits and losses  distributed  according to the joint
venture agreement, and purchases qualified finance receivables originated by the
joint venture. Specialty Finance also utilizes "virtual joint ventures," whereby
the assets are originated on Specialty  Finance's  balance sheet,  while profits
and losses are shared  with the  vendor.  These  strategic  alliances  are a key
source  of  business   for   Specialty   Finance  and  are   generated   through
intermediaries  and other referral  sources,  as well as through direct end-user
relationships.  During 2004 we broadened  our  international  presence  with the
acquisition of a Western European vendor finance business.

      The Specialty Finance small/mid-ticket commercial loan business focuses on
leasing office products, computers, point-of-sale equipment and other technology
products  primarily in the United  States and Canada.  Products  are  originated
through   direct   calling  on   customers   and  through   relationships   with
manufacturers, dealers, distributors and other intermediaries. During the second
quarter of 2004, we purchased a technology  financing business to compliment our
product line-up.

      We have been  liquidating the manufactured  housing  portfolio since 2001.
During the fourth quarter of 2004, we considered  additional  opportunities  for
more rapid  liquidation  of these  assets and entered  into an agreement to sell
over $300 million of the $553 million in this portfolio. This sale, which closed
in January 2005, is the continuation of an ongoing process to re-deploy  capital
in higher return businesses.  We will consider additional opportunities for more
rapid liquidation of non-strategic assets to the extent available.

Specialty Finance -- consumer Segment

      The Specialty  Finance -- consumer  financing  assets include home lending
and loans retained by CIT Bank, a Utah industrial loan corporation.

      The home lending unit primarily  originates,  purchases and services loans
secured  by  first  or  second  liens on  detached,  single-family,  residential
properties.  Products are both fixed and  variable-rate  closed-end  loans,  and
variable-rate lines of credit.  Customers borrow to consolidate debts, refinance
an existing mortgage,  fund home improvements,  pay education expenses and other
reasons.  Loans are originated  through brokers and  correspondents  with a high
proportion  of home  lending  applications  processed  electronically  over  the
Internet via BrokerEdge(SM),  a proprietary system.  Through experienced lending
professionals  and automation,  Specialty Finance provides rapid turnaround time
from application to loan funding, which is critical to broker relationships.

      CIT Bank,  with assets of $307  million and deposits of $165  million,  is
located  in Salt Lake  City,  Utah and  provides a benefit to CIT in the form of
favorable  funding rates for various  private label  consumer and small business
financing  programs in both the local and  national  marketplace.  CIT Bank also
originates certain loans associated with bank affiliation  programs comprised of
manufacturers/distributors  of consumer  products.  The Bank is chartered by the
state  of  Utah  as an  Industrial  Bank,  and  is  subject  to  regulation  and
examination by the Federal Deposit Insurance Corporation and the Utah Department
of Financial Institutions.


                                       3


      Specialty  Finance  occasionally  sells individual loans and portfolios of
loans to banks,  thrifts and other originators of consumer loans to maximize the
value of its origination network and to improve overall profitability.  Contract
servicing for securitization  trusts and other third parties is provided through
a centralized  consumer Asset Service Center. Our Asset Service Center centrally
services and collects  substantially all of our consumer receivables,  including
loans retained in our portfolio and loans subsequently  securitized or sold with
servicing  retained.  The servicing portfolio also includes loans owned by third
parties  that are  serviced  by our  Specialty  Finance  segment  for a fee on a
"contract" basis. These third-party  portfolios totaled $3.2 billion at December
31, 2004.

      In February 2005,  Specialty  Finance  broadened its product offering with
the  acquisition  of  Education  Lending  Group,   which  offers  student  loans
(primarily U.S.  government  guaranteed).  This acquisition  provides  Specialty
Finance with  approximately  $4 billion in assets and an entry platform into the
education finance market.

Commercial Finance Segment

      We conduct our Commercial  Finance  operations through two business units,
both of which focus on accounts receivable and inventories as the primary source
of security for their lending transactions.

      o     Commercial  Services  provides  factoring and  receivable/collection
            management  products and secured  financing to companies in apparel,
            textile, furniture, home furnishings and other industries.

      o     Business  Credit  provides  secured  financing,  including  term and
            revolving  loans  based on asset  values,  as well as cash  flow and
            enterprise value structures, to a full range of borrowers from small
            to larger-sized companies.

Commercial Services

      Commercial  Services  offers a full range of  domestic  and  international
customized  credit  protection,  lending and  outsourcing  services that include
working capital and term loans,  factoring,  receivable management  outsourcing,
bulk purchases of accounts receivable, import and export financing and letter of
credit programs.

      Financing  is  provided  to  clients  through  the  purchase  of  accounts
receivable  owed to  clients  by  their  customers,  as well as by  guaranteeing
amounts due under letters of credit issued to the clients' suppliers,  which are
collateralized by accounts receivable and other assets. The purchase of accounts
receivable is  traditionally  known as "factoring" and results in the payment by
the client of a factoring fee which is commensurate  with the underlying  degree
of credit risk and recourse, and which is generally a percentage of the factored
receivables  or  sales  volume.   When  Commercial   Services  "factors"  (i.e.,
purchases) a customer invoice from a client, it records the customer  receivable
as an asset and also  establishes  a  liability  for the funds due to the client
("credit balances of factoring  clients").  Commercial Services also may advance
funds to its clients prior to collection of receivables,  typically in an amount
up to 80% of eligible  accounts  receivable  (as defined for that  transaction),
charging  interest on such  advances  (in  addition to any  factoring  fees) and
satisfying such advances by the collection of receivables. The operating systems
of the  clients  and  Commercial  Services  are  integrated  to  facilitate  the
factoring relationship.

      Clients  use  Commercial  Services'  products  and  services  for  various
purposes,  including  improving  cash flow,  mitigating  or reducing the risk of
charge-offs,  increasing sales and improving  management  information.  Further,
with the TotalSource(SM) product, clients can outsource bookkeeping,  collection
and other  receivable  processing  activities.  These services are attractive to
industries outside the typical factoring markets.  Commercial Services generates
business regionally from a variety of sources,  including direct calling efforts
and  referrals  from  existing  clients  and other  referral  sources.  Accounts
receivable, operations and other administrative functions are centralized.

Business Credit

      Business Credit offers loan structures ranging from asset-based  revolving
and term loans secured by accounts  receivable,  inventories and fixed assets to
loans  based  on  earnings  performance  and  enterprise  valuations  to mid and
larger-sized  companies.  Clients use such loans primarily for working  capital,
asset   growth,   acquisitions,    debtor-in-possession   financing   and   debt
restructurings.  Business Credit sells and purchases  participation interests in
such loans to and from other lenders. In conjunction with the combination of the
former  Structured  Finance  segment into Capital  Finance,  approximately  $1.3
billion of  communication  and media assets were  transferred to Business Credit
during 2004.


                                       4


      Business  Credit meets its customer  financing  needs through its variable
rate, senior revolving and term products.  Business Credit primarily  structures
financings on a secured basis,  although its Corporate Finance and Communication
and Media units  extend  loans  based upon the  sustainability  of a  customer's
operating cash flow and ongoing enterprise valuations.  Revolving and term loans
are made on a variable  interest-rate basis based upon published indices such as
LIBOR or the prime rate of interest.

      Business is originated regionally via solicitation activities focused upon
various types of intermediaries and referral sources.  Business Credit maintains
long-term  relationships  with  selected  banks,  finance  companies,  and other
lenders both to source and diversify senior debt exposures.

Equipment Finance Segment

      The Equipment Finance Segment is a middle-market  secured equipment lender
with a strong  market  presence  throughout  North  America.  Equipment  Finance
provides  customized  financial  solutions  for  its  customers,  which  include
manufacturers,   dealers,   distributors,   intermediaries,   and  end-users  of
equipment.  Equipment  Finance's  financing and leasing assets include a diverse
mix of customers, industries, equipment types and geographic areas.

      Primary products in Equipment Finance include:  loans,  leases,  wholesale
and retail financing packages,  operating leases,  sale-leaseback  arrangements,
portfolio  acquisitions,  revolving  lines of credit  and  in-house  syndication
capabilities.  A core  competency for Equipment  Finance is assisting  customers
with  the  total  life-cycle   management  of  their  capital  assets  including
acquisition,  maintenance,  refinancing  and the eventual  liquidation  of their
equipment.   Equipment   Finance   originates   its  products   through   direct
relationships with manufacturers,  dealers,  distributors and intermediaries and
through  an  extensive  network of direct  sales  representatives  and  business
partners located throughout the United States and Canada.  Competitive advantage
is built  through an  experienced  staff that is both familiar with local market
factors  and   knowledgeable   about  the  industries   they  serve.   Operating
efficiencies  are realized  through  Equipment  Finance's two servicing  centers
located in Tempe,  Arizona,  and Burlington,  Ontario.  These offices  centrally
service and collect loans and leases originated throughout the United States and
Canada.

      Equipment  Finance  is  organized  into  three  primary  operating  units:
Construction and Industrial, Specialized Industries and Canadian Operations. The
Construction and Industrial unit has provided  financing to the construction and
industrial  industries  in the  United  States for over  fifty  years.  Products
include  equipment loans and leases,  collateral and cash flow loans,  revolving
lines of  credit  and  other  products  that are  designed  to meet the  special
requirements of contractors,  distributors and dealers. The Specialized Industry
unit offers a wide range of  financial  products  and  services to  customers in
specialized  industries such as corporate aircraft,  food and beverage,  defense
and security,  mining and energy, and regulated industries.  Equipment Finance's
Canadian  Operation has leadership  positions in the  construction,  healthcare,
printing, plastics and machine tool industries.


Capital Finance Segment

      During 2004,  the former  Structured  Finance  segment was  combined  with
Capital  Finance.  The prior period  balances have been restated to reflect this
realignment. In conjunction with the combination,  approximately $1.3 billion of
communication and media assets were transferred to Business Credit.

      Capital Finance  specializes in providing  customized  leasing and secured
financing  primarily  to  end-users  of  aircraft,   locomotives  and  railcars,
including operating leases, single investor leases, equity portions of leveraged
leases,  and sale  and  leaseback  arrangements,  as well as  loans  secured  by
equipment.  Typical  customers are major  domestic and  international  airlines,
North American railroad  companies and middle-market to larger-sized  companies.
New business is generated  through direct  calling  efforts,  supplemented  with
transactions  introduced by intermediaries  and other referral sources.  Capital
Finance utilizes special purpose entities ("SPEs") to record certain  structured
leasing  transactions,  primarily  aerospace  leveraged  leases.  These SPEs are
consolidated in CIT's financial statements.

      Capital Finance has provided financing to commercial  airlines for over 30
years, and the commercial  aerospace portfolio includes most of the leading U.S.
and  foreign  commercial  airlines.  As of December  31,  2004,  the  commercial
aerospace  financing and leasing  portfolio  was $5.1 billion,  consisting of 92
accounts and 212 aircraft with an average age of approximately 6 years.  Capital
Finance has developed strong direct  relationships  with most major airlines and
major aircraft and aircraft engine manufacturers.  This provides Capital Finance
with


                                       5


access to technical  information,  which enhances customer service, and provides
opportunities to finance new business. See "Concentrations"  section of "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations" for further discussion of our aerospace portfolio.

      Capital  Finance has been  financing  the rail industry for over 25 years.
Its dedicated rail equipment group maintains  relationships with several leading
railcar manufacturers and calls directly on railroads and rail shippers in North
America.  The rail  portfolio,  which totaled $2.6 billion at December 31, 2004,
includes  leases to all of the U.S.  and Canadian  Class I railroads  (which are
railroads with annual revenues of at least $250 million) and numerous  shippers.
The operating lease fleet primarily  includes:  covered hopper cars used to ship
grain and agricultural  products,  plastic pellets and cement;  gondola cars for
coal,  steel coil and mill  service;  open hopper cars for coal and  aggregates;
center  beam flat cars for lumber;  and  boxcars  for paper and auto parts.  The
railcar  operating  lease  fleet is  relatively  young,  with an average  age of
approximately 7 years and  approximately  83% (based on net investment) built in
1995 or later.  The rail  owned and  serviced  fleet  totals in excess of 60,000
railcars and over 500 locomotives.

      Capital Finance also provides  specialized  investment banking services to
the  international  corporate  finance  and  institutional  finance  markets  by
providing  asset-based  financing for large-ticket asset  acquisitions,  project
financing and related advisory  services to equipment  manufacturers,  corporate
clients,   regional   airlines,   governments   and  public   sector   agencies.
Transportation and the power and utilities sectors are among the industries that
Capital Finance serves. Capital Finance has a global presence with operations in
the United States, Canada and Europe.

      Capital Finance personnel have extensive  experience in managing equipment
over its full  life  cycle,  including  purchasing  new  equipment,  maintaining
equipment, estimating residual values and re-marketing via re-leasing or selling
equipment.  The unit's  equipment  and industry  expertise  enables it to manage
equipment  risk.  We manage the  equipment,  the residual  value and the risk of
equipment  remaining idle for extended  periods of time and, where  appropriate,
locate alternative equipment users or purchasers.

      Capital  Finance  manages  the direct  private  equity  ($30.1  million at
December 31, 2004) and private fund venture capital ($151.0 million)  investment
portfolios.  We are in the process of the  accelerated  liquidation  of both the
direct and fund  portfolios  via sale.  In 2001,  we ceased  making new  venture
capital investments beyond existing commitments.  In our segment reporting,  the
results are reflected in Corporate. See the "Concentrations" section of "Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations" for further information.

Other Segment and Concentration Data

      The  percentage  of total  segment  operating  margin  for the year  ended
December 31, 2004 by segment is as follows:  Specialty  Finance -- commercial --
35%,  Specialty Finance -- consumer -- 7%, Commercial  Finance -- 30%, Equipment
Finance -- 10%,  and Capital  Finance -- 13%.  For the year ended  December  31,
2004,  approximately  82% of our revenues  were derived from U.S.  financing and
leasing  activities  and  approximately  18%  were  derived  from  international
financing and leasing activities.

      See the "Results by Business  Segments" and  "Concentrations"  sections of
"Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations"  and "Item 7A.  Quantitative  and Qualitative  Disclosures  about
Market  Risk,"  and Notes 5 and 21 of "Item  8.  Financial  Statements  and
Supplementary Data," for additional information.

Competition

      Our markets are highly  competitive  based on factors that vary  depending
upon product,  customer and geographic region.  Competitors  include captive and
independent  finance  companies,   commercial  banks  and  thrift  institutions,
industrial  banks,  leasing  companies,   insurance   companies,   hedge  funds,
manufacturers and vendors. Substantial financial services operations with global
reach have been formed by bank holding, leasing, finance and insurance companies
that compete with us. On a local level,  community banks and smaller independent
finance and mortgage  companies are a competitive  force.  Some competitors have
substantial local market positions.  Many of our competitors are large companies
that have substantial capital, technological and marketing resources. Some


                                       6


of these  competitors are larger than we are and may have access to capital at a
lower cost than we do. The markets for most of our products are characterized by
a large number of competitors,  although the number of competitors has fallen in
recent years as a consequence of continued consolidation in the industry.

      We compete primarily on the basis of terms, structure,  client service and
price.  From time to time, our competitors  seek to compete  aggressively on the
basis of  these  factors  and we may lose  market  share  to the  extent  we are
unwilling to match  competitor  pricing and terms in order to maintain  interest
margins and/or credit standards.

      Other primary competitive factors include industry  experience,  equipment
knowledge and relationships.  In addition,  demand for our products with respect
to certain  industries will be affected by demand for such  industry's  services
and products and by industry regulations.

Regulation

      Our  operations are subject,  in certain  instances,  to  supervision  and
regulation by state,  federal and various foreign  governmental  authorities and
may be  subject  to  various  laws and  judicial  and  administrative  decisions
imposing various  requirements and restrictions,  which, among other things, (i)
regulate   credit  granting   activities,   including   establishing   licensing
requirements, if any, in various jurisdictions,  (ii) establish maximum interest
rates,  finance charges and other charges,  (iii) regulate customers'  insurance
coverages,   (iv)  require   disclosures   to  customers,   (v)  govern  secured
transactions, (vi) set collection, foreclosure, repossession and claims handling
procedures  and other trade  practices,  (vii)  prohibit  discrimination  in the
extension of credit and  administration of loans and (viii) regulate the use and
reporting of  information  related to a borrower's  credit  experience and other
data collection.  In addition,  (i) CIT Bank, a Utah industrial loan corporation
wholly owned by CIT, is subject to  regulation  and  examination  by the Federal
Deposit Insurance Corporation and the Utah Department of Financial Institutions,
(ii) CIT Small Business Lending Corporation, a Delaware corporation, is licensed
by and  subject  to  regulation  and  examination  by the  U.S.  Small  Business
Administration,  (iii) The Equipment  Insurance Company, a Vermont  corporation,
and Highlands  Insurance Company Limited, a Barbados company,  are each licensed
to enter  into  insurance  contracts  and are  regulated  by the  Department  of
Insurance  in  Vermont  and  Barbados,   respectively,   (iv)  various   banking
corporations in the United Kingdom,  France,  Italy,  Belgium,  Sweden,  and the
Netherlands are each subject to regulation and examination by banking regulators
in their home country,  and (v) various  broker-dealer  entities in Canada,  the
United  Kingdom,  and the United  States  are each  subject  to  regulation  and
examination by securities regulators in its home country.

Employees

      CIT employed  approximately  5,860  people at December 31, 2004,  of which
approximately  4,380 were employed in the United States and approximately  1,480
were outside the United States.

Glossary of Key Terms

Term                                    Description
--------------------------------------------------------------------------------
Average Earning Assets (AEA)........   "AEA"   is  the   average   during   the
                                        reporting period of finance receivables,
                                        operating   lease   equipment,   finance
                                        receivables  held for  sale and  certain
                                        investments,  less  credit  balances  of
                                        factoring  clients.  The average is used
                                        for  certain key  profitability  ratios,
                                        including return on AEA and margins as a
                                        percentage of AEA.

Average Finance
  Receivables (AFR).................   "AFR"   is  the   average   during   the
                                        reporting period of finance  receivables
                                        and includes  loans and finance  leases.
                                        It excludes  operating lease  equipment.
                                        The  average is used to measure the rate
                                        of charge-offs for the period.

Average Managed Assets (AMA)........   "AMA" is the average earning assets plus
                                        the   average  of  finance   receivables
                                        previously securitized and still managed
                                        by us.  The  average  is used to measure
                                        the  rate of  charge-offs  on a  managed
                                        basis for the period to monitor  overall
                                        credit   performance,   and  to  monitor
                                        expense control.


                                       7


Term                                   Description
--------------------------------------------------------------------------------
Derivative Contracts ...............    Derivatives  are entered  into to reduce
                                        interest rate or foreign  currency risks
                                        and more  recently to hedge credit risk.
                                        Derivative contracts used by CIT include
                                        interest  rate  swaps,   cross  currency
                                        swaps,    foreign    exchange    forward
                                        contracts and credit default swaps.

Efficiency Ratio ...................    The efficiency  ratio measures the level
                                        of   expenses  in  relation  to  revenue
                                        earned,   and  is   calculated   as  the
                                        percentage   of  salaries   and  general
                                        operating  expenses to operating margin,
                                        excluding   the   provision  for  credit
                                        losses.

Finance Income .....................    Finance  income  includes  both interest
                                        income on finance receivables and rental
                                        income on operating leases.

Financing and Leasing Assets .......    Financing  and  leasing  assets  include
                                        loans,   capital  and  finance   leases,
                                        leveraged   leases,   operating  leases,
                                        assets   held  for   sale  and   certain
                                        investments.

Leases -- capital and finance ......    Lease designation  describing  financing
                                        structures whereby  substantially all of
                                        the  economic   benefits  and  risks  of
                                        ownership are passed to the lessee.

Leases -- leveraged ................    Similar to capital leases except a third
                                        party,  long-term  creditor  is involved
                                        and  provides  debt  financing.  CIT  is
                                        party to these  lease  types as creditor
                                        or   as   lessor,   depending   on   the
                                        transaction.

Leases -- tax-optimized leveraged ..    Leveraged  leases  are  where we are the
                                        lessor and have  increased  risk of loss
                                        in  default  in   comparison   to  other
                                        leveraged lease structures, because they
                                        typically  feature higher leverage,  and
                                        the   third-party   creditor   in  these
                                        structures  has a priority  recourse  to
                                        the leased equipment.

Leases -- operating ................    Lease   designation  where  CIT  retains
                                        beneficial   ownership   of  the  asset,
                                        collects  rental  payments,   recognizes
                                        depreciation  on the asset,  and assumes
                                        the   risks  of   ownership,   including
                                        obsolescence.

Managed Assets .....................    Managed  assets are comprised of finance
                                        receivables,  operating lease equipment,
                                        finance   receivables   held  for  sale,
                                        certain  investments,   and  receivables
                                        securitized and still managed by us. The
                                        change  in  managed   assets   during  a
                                        reporting   period   is   one   of   our
                                        measurements of asset growth.

Non-GAAP Financial Measures ........    Non-GAAP financial measures are balances
                                        that do not  readily  agree to  balances
                                        disclosed   in   financial    statements
                                        presented in accordance  with accounting
                                        principles  generally  accepted  in  the
                                        U.S.  These  measures  are  disclosed to
                                        provide   additional   information   and
                                        insight relative to historical operating
                                        results  and  financial  position of the
                                        business.

Non-performing Assets ..............    Non-performing   assets   include  loans
                                        placed  on  non-accrual  status,  due to
                                        doubt of collectibility of principal and
                                        interest, and repossessed assets.

Non-spread Revenue .................    Non-spread  revenues include syndication
                                        fees,   gains   from   dispositions   of
                                        equipment,  factoring commissions,  loan
                                        servicing   and   other   fees  and  are
                                        reported in Other Revenue.

Operating Margin ...................    The total of net  finance  margin  after
                                        provision   for  credit   losses   (risk
                                        adjusted margin) and other revenue.

Retained Interest ..................    The  portion of the  interest  in assets
                                        sold  in  a  securitization  transaction
                                        that is retained by CIT.

Residual Values.....................    Residual values  represent the estimated
                                        value  of  equipment  at the  end of the
                                        lease term. For operating  leases, it is
                                        the   value  to  which   the   asset  is
                                        depreciated  at the  end  of its  useful
                                        economic life (i.e., "salvage" or "scrap
                                        value").


                                       8


Term                                    Description
--------------------------------------------------------------------------------
Return on Equity or
  Tangible Equity...................    Net income  expressed as a percentage of
                                        average   equity  or  average   tangible
                                        equity.  These are key  measurements  of
                                        profitability.

Risk Adjusted Margin................    Net finance  margin after  provision for
                                        credit losses.

Special Purpose Entity (SPE)........    Distinct  legal  entities  created for a
                                        specific purpose in order to isolate the
                                        risks and  rewards  of owning its assets
                                        and incurring its liabilities.  SPEs are
                                        typically    used   in    securitization
                                        transactions,        joint       venture
                                        relationships  and  certain   structured
                                        leasing transactions.

Tangible Equity.....................    Tangible  stockholders'  equity excludes
                                        goodwill  and other  intangible  assets,
                                        and certain other  comprehensive  income
                                        items  and  includes  preferred  capital
                                        securities.  Tangible equity is utilized
                                        in leverage ratios and return ratios.

Yield-related Fees..................    In certain transactions,  in addition to
                                        interest income,  yield-related fees are
                                        collected   for   the    assumption   of
                                        underwriting risk.  Yield-related  fees,
                                        which   include   prepayment   fees  and
                                        certain  origination  fees, are reported
                                        in  Finance  Income  and are  recognized
                                        over   the    life   of   the    lending
                                        transaction.

Item 2. Properties

      CIT  operates  in  the  United  States,  Canada,  Europe,  Latin  America,
Australia and the Asia-Pacific  region.  CIT occupies  approximately 2.0 million
square feet of office space,  substantially all of which is leased.  Such office
space is suitable and adequate for our needs and we utilize, or plan to utilize,
substantially all of our leased office space.

Item 3. Legal Proceedings

Putative Securities Class Action

      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 former  Chief  Executive
Officer and its Chief Financial Officer. The lawsuit contained  allegations that
the registration  statement and prospectus prepared and filed in connection with
CIT's 2002 initial public offering ("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  purported to have been brought on
behalf of all those who  purchased  CIT common stock in or traceable to the IPO,
and sought,  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 one of which named as  defendants
some of the  underwriters  in the  IPO  and  certain  former  directors  of CIT.
Glickenhaus & Co., a privately held investment firm, was named lead plaintiff in
the  consolidated  action.  On September 16, 2003,  an amended and  consolidated
complaint was filed. That complaint contained substantially the same allegations
as the original complaints. In addition to the foregoing, two similar suits (the
"Derivative  Suits")  were  brought  by  certain  shareholders  on behalf of CIT
against  CIT  and  some of its  present  and  former  directors  under  Delaware
corporate law.

      On December 28, 2004,  the United States  District  Court entered an order
granting CIT's motion to dismiss the consolidated  case. The plaintiff's time to
appeal that order  expired on January  28, 2005 with no notice of appeal  having
been filed. The cases against all parties,  including the Derivative Suits, have
been dismissed.


                                       9


NorVergence Related Litigation

      On  September  9,  2004,  Exquisite  Caterers  v.  Popular  Leasing et al.
("Exquisite  Caterers"),  a putative national class action, was filed against 13
financial  institutions,  including  CIT,  who  had  acquired  equipment  leases
("NorVergence Leases") from NorVergence,  Inc., a reseller of telecommunications
and Internet  services to  businesses.  The  Exquisite  Caterers  lawsuit is now
pending in the Superior Court of New Jersey, Monmouth County. Exquisite Caterers
based  its  complaint  on  allegations  that  NorVergence   misrepresented   the
capabilities  of the equipment  leased to its customers and  overcharged for the
equipment.  The complaint asserts that the NorVergence  Leases are unenforceable
and seeks rescission,  punitive damages,  treble damages and attorneys' fees. In
addition,  putative class action suits in Florida,  Illinois, New York and Texas
and  several  individual  suits,  all based upon the same core  allegations  and
seeking the same relief,  have been filed by NorVergence  customers  against CIT
and other financial institutions.

      On July 14, 2004,  the U.S.  Bankruptcy  Court ordered the  liquidation of
NorVergence  under Chapter 7 of the Bankruptcy Code.  Thereafter,  the Attorneys
General of Florida,  New Jersey,  New York,  Illinois,  Massachusetts  and Texas
commenced   investigations  of  NorVergence  and  the  financial   institutions,
including CIT, which purchased  NorVergence  Leases. CIT entered into settlement
negotiations  with those  Attorney  Generals  and with  Attorneys  General  from
several other states,  including  Pennsylvania  and  Massachusetts.  In December
2004,  CIT  reached  separate  settlements  with the New York and the New Jersey
Attorneys General. Under those settlements, lessees in those states will have an
opportunity  to resolve all claims by and against CIT by paying a percentage  of
the remaining balance on their lease.  Negotiations with other Attorneys General
are  continuing.  CIT has also been asked by the  Federal  Trade  Commission  to
produce  documents for  transactions  related to  NorVergence.  In addition,  on
February  15, 2005,  CIT was served with a subpoena  seeking the  production  of
documents in a grand jury proceeding  being  conducted by the U.S.  Attorney for
the  Southern  District  of New  York in  connection  with an  investigation  of
transactions  related to  NorVergence.  CIT is in the process of complying  with
these information requests.

Other Litigation

      In addition,  there are various legal proceedings  against CIT, which have
arisen in the  ordinary  course of  business.  While the  outcomes  of the above
mentioned and ordinary course legal  proceedings and the related  activities are
not certain, based on present assessments, management does not believe that they
will have a material adverse effect on the financial condition of CIT.

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

      We did not submit any  matters to a vote of  security  holders  during the
three months ended December 31, 2004.


                                       10


                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

      Our common stock is listed on the New York Stock  Exchange.  The following
table sets forth the high and low  reported  sale prices for CIT's  common stock
for each of the quarterly periods in the two years ended December 31, 2004.

                                         2004                2003
                                   ----------------    ----------------
Common Stock Prices                 High      Low       High       Low
-------------------                ------    ------    ------    ------
First Quarter ..............       $39.91    $35.83    $21.90    $16.61
Second Quarter .............       $38.73    $33.28    $24.65    $17.22
Third Quarter ..............       $38.48    $34.53    $30.10    $23.97
Fourth Quarter .............       $45.82    $36.51    $35.95    $29.50

      During the year ended December 31, 2004, for each of the four quarters, we
paid a dividend  of $0.13 per share for a total of $0.52 per  share.  During the
year ended December 31, 2003, for each of the four quarters,  we paid a dividend
of $0.12  per  share  for a total of $0.48  per  share.  This  $0.12  per  share
quarterly  dividend  rate was approved by our Board of Directors  following  our
July 2002 IPO and was paid  initially  on November 27, 2002 to  shareholders  of
record on November 15, 2002.

      Our  dividend  practice  is to pay a  dividend  while  retaining  a strong
capital base. The declaration and payment of future dividends are subject to the
discretion of our Board of  Directors.  Any  determination  as to the payment of
dividends, including the level of dividends, will depend on, among other things,
general economic and business  conditions,  our strategic and operational plans,
our  financial  results  and  condition,   contractual,   legal  and  regulatory
restrictions  on the payment of dividends  by us, and such other  factors as the
Board of Directors may consider to be relevant.

      As of February 15, 2005, there were 82,666 beneficial owners of CIT common
stock.

      All equity  compensation  plans in effect during 2004 were approved by our
shareholders, and are summarized in the following table.



                                                                                                  Number of securities
                                                                                                remaining available for
                                                 Number of securities                            future issuance under
                                                    to be issued          Weighted-average     equity compensation plans
                                                  upon exercise of        exercise price of      (excluding securities
                                                outstanding options(1)   outstanding options   reflected in column (a))(2)
                                                ----------------------   -------------------   ---------------------------
                                                        (a)                     (b)                      (c)
                                                                                             
Equity compensation plans approved
   by security holders......................         19,863,907               $33.07                  9,797,410


--------------------------------------------------------------------------------
(1)   Excludes  1,269,641  unvested  restricted  shares and 688,928  performance
      shares outstanding under the Long-Term Equity Compensation Plan.

(2)   Does  not  consider  688,928  performance  shares  outstanding  under  the
      Long-Term Equity Compensation Plan.

      We  had  no  equity   compensation   plans  that  were  not   approved  by
shareholders.   For  further  information  on  our  equity  compensation  plans,
including the weighted average exercise price, see Item 8. Financial  Statements
and Supplementary Data, Note 16.


                                       11


      The following  table details the  repurchase  activity of CIT common stock
during the quarter ended December 31, 2004.



                                                                          Total Number of      Maximum Number
                                               Total          Average    Shares Purchased    of Shares that May
                                             Number of         Price    as Part of Publicly   Yet be Purchased
                                              Shares           Paid       Announced Plans      Under the Plans
                                             Purchased       Per Share      or Programs          or Programs
                                                                                    
Balance at September 30, 2004                2,222,256        $36.28                               273,500
                                            ----------
   October 1 - 31, 2004 .....                  262,500        $37.94         262,500             3,011,000
   November 1 - 30, 2004 ....                  255,000        $40.63         255,000             2,756,000
   December 1 - 31, 2004 ....                  375,000        $44.18         375,000             2,381,000
                                            ----------                       -------
   Total Purchases ..........                  892,500                       892,500
                                            ----------                       -------
Reissuances(1) ..............               (1,442,723)
                                            ----------
Balance at December 31, 2004                 1,672,033
                                            ==========


--------------------------------------------------------------------------------
(1)   Includes the issuance of shares of our common stock upon exercise of stock
      options.

      On October 20, 2004, our Board of Directors approved a continuation of the
common stock repurchase  program to acquire up to an additional 3 million shares
of our outstanding common stock in conjunction with employee equity compensation
programs.  These  are in  addition  to the  273,500  shares  remaining  from the
previously  approved  program on April 21,  2004.  The  program  authorizes  the
company to purchase  shares on the open market from time to time over a two-year
period  beginning  October 21,  2004.  The  repurchased  common stock is held as
treasury  shares and may be used for the issuance of shares under CIT's employee
stock plans.  Acquisitions  under the share repurchase program will be made from
time to time at prevailing  prices as permitted by applicable  laws, and subject
to market  conditions and other factors.  The program may be discontinued at any
time and is not expected to have a significant impact on our capitalization.


                                       12


Item 6. Selected Financial Data

      The following tables set forth selected consolidated financial information
regarding our results of operations and balance sheets. The data presented below
should be read in conjunction with Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations and Item 7A. Quantitative and
Qualitative Disclosures about Market Risk and Item 8. Financial Statements and
Supplementary Data.



                                          At or for     At or for     At or for        At or        At or for     At or for
                                           the Year      the Year     the Three       for the        the Nine      the Year
                                            Ended         Ended     Months Ended    Year Ended     Months Ended      Ended
                                         December 31,  December 31,  December 31,  September 30,   September 30,  December 31,
                                             2004          2003          2002          2002             2001         2000
                                          ---------     ---------     ---------     ---------        ---------     ---------
($ in millions, except per share data)
--------------------------------------
                                                                                                 
Results of Operations
Net finance margin .................      $ 1,569.6     $ 1,327.8     $   344.9     $ 1,637.1        $ 1,301.7     $ 1,447.9
Provision for credit losses ........          214.2         387.3         133.4         788.3            332.5         255.2
Operating margin ...................        2,242.5       1,799.8         468.6       1,781.1          1,541.8       2,104.7
Salaries and general operating
   expenses ........................        1,046.4         912.9         232.6         921.0            777.4       1,013.7
Net income (loss) ..................          753.6         566.9         141.3      (6,698.7)(2)        263.3         611.6
Net income (loss) per
   share(1) -- diluted .............           3.50          2.66          0.67        (31.66)            1.24          2.89
Dividends per share(1) .............           0.52          0.48          0.12         --                0.25          0.50
Balance Sheet Data
Total finance receivables ..........      $35,048.2     $31,300.2     $27,621.3     $28,459.0        $31,879.4     $33,497.5
Reserve for credit losses ..........          617.2         643.7         760.8         777.8            492.9         468.5
Operating lease equipment, net .....        8,290.9       7,615.5       6,704.6       6,567.4          6,402.8       7,190.6
Total assets .......................       51,111.3      46,342.8      41,932.4      42,710.5         51,349.3      48,689.8
Commercial paper ...................        4,210.9       4,173.9       4,974.6       4,654.2          8,869.2       9,063.5
Variable-rate senior notes .........       11,545.0       9,408.4       4,906.9       5,379.0          9,614.6      11,130.5
Fixed-rate senior notes ............       21,715.1      19,830.8      19,681.8      18,385.4         17,113.9      17,571.1
Stockholders' equity ...............        6,055.1       5,394.2       4,870.7       4,757.8          5,947.6       6,007.2
Selected Data and Ratios
Profitability
Net income (loss) as a percentage
   of AEA ..........................           1.93%         1.58%         1.73%       (18.71)%           0.87%         1.50%
Net income (loss) as a percentage
   of average tangible stockholders'
   equity ..........................           14.5%         11.8%         12.5%       (160.0)%            8.5%         16.0%
Net finance margin as a percentage
   of AEA ..........................           4.02%         3.71%         4.22%         4.57%            4.29%         3.56%
Efficiency ratio ...................           42.6%         41.7%         38.6%         35.8%            41.5%         43.0%
Salaries and general operating
   expenses (excluding goodwill
   amortization in 2001 and prior
   periods) as a percentage
   of AMA ..........................           2.20%         1.99%         2.10%         1.95%            2.05%         1.97%

Credit Quality
60+ days contractual delinquency
   as a percentage of finance
   receivables...................              1.73%         2.16%         3.63%         3.76%            3.46%         2.98%
Non-accrual loans as a percentage
   of finance receivables........              1.31%         1.81%         3.43%         3.43%            2.67%         2.10%
Net credit losses as a percentage
   of AFR........................              0.91%         1.77%         2.32%         1.67%            1.20%         0.71%
Reserve for credit losses as a
   percentage of finance
   receivables...................              1.76%         2.06%         2.75%         2.73%            1.55%         1.40%
Other
Total managed assets.............         $53,470.6     $49,735.6     $46,357.1     $47,622.3        $50,877.1     $54,900.9
Tangible stockholders' equity to
   managed assets................              10.7%         10.4%         10.4%          9.9%             8.6%          7.8%
Employees........................             5,860         5,800         5,835         5,850            6,785         7,355


--------------------------------------------------------------------------------
(1)   Net income  (loss) and  dividend per share  calculations  for the  periods
      preceding  September 30, 2002 assume that common shares  outstanding  as a
      result of the July 2002 IPO (basic and diluted of 211.6  million and 211.7
      million) were outstanding during such historical periods.

(2)   Includes goodwill impairment charge of $6,511.7 million.


                                       13


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations and

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

      The  following  discussion  uses  financial  terms  that we  believe to be
relevant to our business. A glossary of other key terms used in our business can
be found in Part I -- Item 1. "Business" section.

Introduction

      Our primary  sources of revenue are interest and rental income  related to
collateralized  lending and equipment  leasing.  Finance  receivables (loans and
capital  leases) and operating lease  equipment  (operating  leases) are the two
major asset types that generate this revenue. In the case of finance receivables
(which are financial assets), the substantive risks and rewards of equipment and
other  collateralized  asset  ownership  belong  to the  customer  and we retain
predominantly  the borrower  credit risk.  With operating  lease  equipment,  we
retain the  substantive  risks and  rewards of  equipment  ownership,  including
depreciation  benefits  and the  risk of  damage  or  obsolescence.  We fund our
leasing and lending  activity via the global capital  markets,  using commercial
paper,  unsecured term debt, and securitizations.  We refer to the excess of our
interest and rental  income over our interest  expense as "net finance  margin."
This revenue is supplemented by other "non-spread"  sources of revenue,  such as
syndication fees, gains from dispositions of equipment,  factoring  commissions,
servicing of loans and other fees.

      We measure our overall level of profitability with the following metrics:

            o     Net income as a percentage of average earning assets (AEA);

            o     Net income per common share (EPS);

            o     Net income as a percentage of average  tangible equity (ROTE);
                  and

            o     Net income as a percentage of average equity (ROE).

      We believe that the keys to enhancing profitability in our business are as
follows:

      Net Interest Margin -- Our ability to lend money at rates in excess of our
      cost of borrowing. We measure this with the following ratios:

            o     Finance income as a percentage of AEA; and

            o     Net finance income as a percentage of AEA.

      Funding and Market Rate Risk  Management -- Our ability to access  funding
      sources at competitive  rates,  which depends on maintaining  high quality
      assets,  strong capital ratios and high credit ratings. This profitability
      key is also a function of interest rate and currency rate risk management,
      where the goal is to  substantially  insulate  our  interest  margins  and
      profits  from  movements  in market  interest  rates and foreign  currency
      exchange  rates.  We gauge our funding and interest  rate risk  management
      activities with various measurements, including the following:

            o     Interest expense as a percentage of AEA;

            o     Net finance margin as a percentage of AEA; and

            o     Various interest  sensitivity and liquidity  measurements that
                  are discussed in Net Finance Margin and Risk Management.

      Equipment  and  Residual  Risk  Management  --  Our  ability  to  evaluate
      collateral  risk in  leasing  and  lending  transactions  and to  remarket
      equipment  at lease  termination.  We measure  these  activities  with the
      following:

            o     Operating  lease  margin as a  percentage  of  average  leased
                  equipment;

            o     Gains and losses on equipment sales; and

            o     Equipment utilization/value of equipment off lease.


                                       14


      Credit Risk Management -- Our ability to evaluate the  creditworthiness of
      our  customers,  both  during the credit  granting  process  and after the
      advancement of funds,  and to maintain high quality assets while balancing
      income  potential with adequate credit loss reserve levels.  We assess our
      credit risk management activities with the following measurements:

            o     Net   charge-offs   as  a   percentage   of  average   finance
                  receivables;

            o     Delinquent assets as a percentage of finance receivables;

            o     Non-performing assets as a percentage of finance receivables;

            o     Reserve  for  credit   losses  as  a  percentage   of  finance
                  receivables,  of  delinquent  assets,  and  of  non-performing
                  assets; and

            o     Concentration risk management.

      Expense  Management  --  Our  ability  to  maintain  efficient   operating
      platforms and  infrastructure  in order to run our business at competitive
      cost levels. We track our efficiency with the following measurements:

            o     Efficiency  ratio,  which is the ratio of salaries and general
                  operating expenses to operating margin excluding the provision
                  for credit losses; and

            o     Operating  expenses as a percentage of average  managed assets
                  (AMA).

      Asset  Generation  and Growth -- Our ability to originate new business and
      build our earning assets in a focused and prudent  manner.  We measure our
      performance in these areas with the following:

            o     Origination volumes;

            o     Levels of financing  and leasing  assets,  and managed  assets
                  (including securitized finance receivables that we continue to
                  manage); and

            o     Levels of non-spread and other revenue.

      Capital  Management  -- Our ability to maintain a strong  capital base. We
      measure our performance in these areas with the following:

            o     Tangible capital base; and

            o     Tangible equity to managed assets ratio.

Profitability and Key Business Trends

      Profitability measurements for the respective periods are presented in the
      table below:




                                          Years Ended     Three Months
                                         December 31,        Ended        Year Ended
                                        ----------------   December 31,  September 30,
                                         2004      2003       2002           2002
                                        ------    ------  -------------  -------------
                                                              
Net income per diluted share .........  $3.50     $2.66      $0.67        $(31.66)
Net income as a percentage of AEA ....   1.93%     1.58%      1.73%        (18.71)%
Return on average tangible equity ....   14.5%     11.8%      12.5%        (160.0)%


      Managed  assets  grew 7.5% during 2004 to $53.5  billion,  following  7.3%
growth in 2003.  Consistent  with 2003, our focus in 2004 was on prudent growth,
as we continued to supplement  organic growth with strategic  acquisitions  that
integrated well with existing business platforms. Aided by an improving economy,
this  approach  to growth  and risk  management  led to  continued  declines  in
delinquency, non-performing assets and charge-off levels from 2003.

      The ratio of tangible  stockholders' equity to managed assets strengthened
to 10.72% at December 31, 2004, versus 10.45% and 10.41% at the end of the prior
two years.  During 2004, we also executed on our strategy to allocate capital to
businesses with higher risk-adjusted  returns through the continued  liquidation
of non-strategic portfolios. As part of this strategy, during the fourth quarter
of 2004,  we  contracted  to sell  over $300  million  of  manufactured  housing
receivables and approximately  $150 million of venture capital fund investments.
These


                                       15


actions were consistent with similar sale and syndication initiatives earlier in
2004 and in 2003. Including the impact of the recently announced student lending
business acquisition and the fourth quarter accelerated liquidations, we believe
that our capital is adequate.

      Expense efficiency measurements for 2004 deteriorated from the prior year,
reflecting  increases  in both revenue  generation  costs  (expenses  related to
acquired  businesses,  incentive-based  compensation,  enhancement / maintenance
costs related to aerospace and rail operating  lease assets) and  administrative
costs  (professional  services and other  compliance-related  costs,  credit and
collection  expenses).  Improvement in expense efficiency is a primary corporate
goal for 2005.  Accordingly,  several  initiatives are underway to reduce costs,
including systems consolidations and process efficiency reviews.

      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.  ($ in
millions):



                                                     Years Ended     Three Months
                                                     December 31,        Ended        Year Ended
                                                   ----------------   December 31,   September 30,
                                                    2004      2003        2002           2002
                                                   ------    ------      ------        ---------
                                                                           
Net income/(loss) GAAP basis .................     $753.6    $566.9      $141.3        $(6,698.7)
Charges/(gains) included in net income/loss
  Gain on debt redemption ....................      (25.5)    (30.8)         --               --
  Specific reserving actions and other charges      (26.4)       --          --            220.1
  Venture capital losses, net ................        2.1      53.9         3.9             25.0
  Goodwill impairment ........................         --        --          --          6,511.7
  TCH losses .................................         --        --          --            723.5
                                                   ------    ------      ------        ---------
Non-GAAP net income -- before charges/gains ..     $703.8    $590.0      $145.2        $   781.6
                                                   ======    ======      ======        =========


      During 2004 and 2003,  we  recognized a gain on the  redemption of certain
debt instruments. In 2002, we took specific reserving actions and recorded other
charges.  A portion of the remaining  specific reserves were reduced through net
income in 2004.  The  exclusion  of these  transactions  aids in the analysis of
results over the periods presented.  The adoption of SFAS No. 142, "Goodwill and
Other Intangible Assets" in October 2001 introduced goodwill impairment charges.
The  impairment  charge in the period  ended  September  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.

      This  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations" and "Quantitative and Qualitative Disclosure about Market
Risk" contain  certain  non-GAAP  financial  measures.  See "Non-GAAP  Financial
Measurements" for additional  information.  The sections that follow analyze our
results  by  financial   statement  caption  and  are  referenced  back  to  the
profitability keys that are discussed in "Introduction."


                                       16


Results by Business Segment

      The  tables  that  follow  summarize  selected  financial  information  by
business  segment,  based upon a fixed leverage ratio across business units, the
allocation of most  corporate  expenses and exclude TCH results of operations ($
in millions).



                                              Years Ended     Three Months
                                              December 31,       Ended        Year Ended
                                          ------------------   December 31,  September 30,
                                           2004        2003       2002          2002
                                          ------      ------  -------------  -------------
                                                                  
Net Income (Loss)
Specialty Finance -- commercial ....      $268.3      $225.3     $ 64.9       $   271.6
Specialty Finance -- consumer ......        48.9        35.6        8.8            78.2
                                          ------      ------     ------       ---------
   Total Specialty Finance .........       317.2       260.9       73.7           349.8
                                          ------      ------     ------       ---------
Commercial Finance .................       295.5       245.0       71.0           228.5
Equipment Finance ..................        77.7        38.5       13.4           121.1
Capital Finance ....................       105.0        72.6       29.1           116.5
                                          ------      ------     ------       ---------
   Total Commercial Finance ........       478.2       356.1      113.5           466.1
                                          ------      ------     ------       ---------
   Total Segments ..................       795.4       617.0      187.2           815.9
Corporate, including certain charges       (41.8)      (50.1)     (45.9)       (6,791.1)
                                          ------      ------     ------       ---------
   Total ...........................      $753.6      $566.9     $141.3       $(5,975.2)
                                          ======      ======     ======       =========
Return on AEA
Specialty Finance -- commercial ....        2.55%       2.21%      2.90%           2.85%
Specialty Finance -- consumer ......        1.26%       1.73%      2.58%           3.56%
   Total Specialty Finance .........        2.21%       2.13%      2.86%           2.98%
Commercial Finance .................        3.58%       3.15%      4.64%           3.27%
Equipment Finance ..................        1.12%       0.56%      0.65%           1.24%
Capital Finance ....................        1.14%       0.85%      1.52%           1.65%
   Total Commercial Finance ........        1.96%       1.53%      2.06%           1.96%
   Total Segments ..................        2.05%       1.74%      2.32%           2.29%
Corporate, including certain charges       (0.12)%     (0.16)%    (0.59)%        (18.99)%
   Total ...........................        1.93%       1.58%      1.73%         (16.69)%


      Beginning in 2005,  management will be measuring segment performance using
risk-adjusted capital, applying different leverage ratios to each business using
market and risk criteria.

      Our segment reporting was modified in two ways in 2004. First, in order to
align better with the market place and improve efficiency, the former Structured
Finance  segment  was  merged  with  Capital  Finance,  and at the same time the
telecommunications  and media portfolio was moved to the Business Credit unit of
Commercial Finance.  Secondly, our Specialty Finance -- consumer unit was broken
out as a  separate  segment.  All prior  periods  have been  conformed  to these
changes and this  updated  presentation  is  consistent  with the  reporting  to
management during 2004.

2004 versus 2003 Results

      Results by segment were as follows:

      o     Specialty Finance -- commercial reflected profitability  improvement
            in the small /  mid-ticket  leasing and the  continuation  of strong
            returns in the  vendor  programs,  which were  offset in part by the
            loss  related to the  accelerated  liquidation  of the  manufactured
            housing portfolio.

      o     Specialty  Finance -- consumer  results  reflected higher net income
            and the  continuation of good returns in the home lending unit. Home
            lending  profitability also reflected lower  securitization gains in
            2004.

      o     Commercial Finance earnings benefited from continued high returns in
            both  the  factoring  and  asset-based   lending   businesses.   The
            improvement  from the  prior  year was  particularly  strong  in the
            factoring unit, as current year results  benefited from acquisitions
            completed in the latter part of 2003.


                                       17


      o     Equipment   Finance   returns,   while  still   below   management's
            expectations,  improved  from the low 2003 level,  reflecting  lower
            charge-offs,  improved  funding  costs and higher  equipment  gains.
            Profitability improvement was across business lines in both the U.S.
            and Canada.

      o     Similar to Equipment Finance, Capital Finance returns rebounded from
            disappointing  results  in  2003,  reflecting  some  improvement  in
            aerospace  rentals and  continued  strong rail  rentals,  as well as
            increased non-spread revenue.

2003 versus 2002 Results

      The improvement in the  bottom-line  return on AEA in 2003 versus 2002 was
due to the goodwill  impairment  charge in 2002 and reduced corporate charges in
2003.  Segment  returns for 2003  versus the 2002  periods  were  reduced by the
allocation  of all  borrowing  costs to the  segments in 2003.  Noteworthy  2003
trends by segment are as follows:

      o     Specialty  Finance return on AEA, while below 2002, was in line with
            the Corporate return on equity targets for 2003.  Specialty  Finance
            performance  for 2003 included  improved  earnings in  International
            operations  and strong  earnings  from  vendor  programs,  offset by
            slightly higher  charge-offs and reduced  securitization  gains from
            2002 levels.

      o     Commercial  Finance earnings  remained very strong,  benefiting from
            continued high returns in both the factoring and asset-based lending
            businesses.

      o     Equipment Finance returns reflected soft margins,  offset in part by
            reduced charge-offs in relation to 2002.

      o     Capital Finance earnings were dampened by the lower aerospace rental
            rates and the waste-to-energy project charge-off.

      Corporate included amounts as shown in the table below (after tax):



                                               Years Ended    Three Months
                                               December 31,      Ended       Year Ended
                                            ----------------  December 31,  September 30,
                                             2004      2003       2002          2002
                                            -------  -------  ------------  -------------
                                                                 
Unallocated expenses ....................   $(78.2)  $ (3.3)    $(36.3)      $   (27.3)
Specific telecommunication & Argentine
  provisions ............................     26.4       --         --          (207.7)
Gain on debt redemption .................     25.5     30.8         --              --
Venture capital operating losses, net(1)     (15.5)   (77.6)      (9.6)          (44.4)
Goodwill impairment .....................       --       --         --        (6,511.7)
                                            ------   ------     ------       ---------
  Total .................................   $(41.8)  $(50.1)    $(45.9)      $(6,791.1)
                                            ======   ======     ======       =========


--------------------------------------------------------------------------------
(1)   Venture  capital  operating -- net losses include  realized and unrealized
      gains  and  losses  related  to  venture  capital  investments  as well as
      interest  costs  and  other  operating  expenses   associated  with  these
      portfolios.

      The increase in unallocated  corporate  operating  expense in 2004 was due
primarily to increased performance-based compensation, professional services and
other compliance-related costs as well as higher unallocated funding costs.


                                       18


Net Finance Margin

      An analysis of net finance margin is set forth below ($ in millions):



                                                       Years Ended         Three Months
                                                       December 31,           Ended       Year Ended
                                                -----------------------    December 31,  September 30,
                                                   2004          2003          2002          2002
                                                ---------     ---------    ------------  ------------
                                                                              
Finance income -- loans and capital leases      $ 2,363.8     $ 2,249.2     $   582.0     $ 2,609.4
Rental income on operating leases ........        1,421.9       1,480.3         389.7       1,733.4
Interest expense .........................        1,260.1       1,348.7         349.5       1,464.7
                                                ---------     ---------     ---------     ---------
   Net finance income ....................        2,525.6       2,380.8         622.2       2,878.1
Depreciation on operating lease equipment           956.0       1,053.0         277.3       1,241.0
                                                ---------     ---------     ---------     ---------
   Net finance margin ....................      $ 1,569.6     $ 1,327.8     $   344.9     $ 1,637.1
                                                =========     =========     =========     =========
Average Earnings Asset ("AEA") ...........      $39,011.3     $35,813.4     $32,693.2     $35,796.4
                                                =========     =========     =========     =========
As a % of AEA:
Finance income -- loans and capital leases           6.06%         6.28%         7.12%         7.29%
Rental income on operating leases ........           3.64%         4.13%         4.77%         4.84%
Interest expense .........................           3.23%         3.76%         4.28%         4.09%
                                                ---------     ---------     ---------     ---------
   Net finance income ....................           6.47%         6.65%         7.61%         8.04%
Depreciation on operating lease equipment            2.45%         2.94%         3.39%         3.47%
                                                ---------     ---------     ---------     ---------
   Net finance margin ....................           4.02%         3.71%         4.22%         4.57%
                                                =========     =========     =========     =========
As a % of AOL:
Rental income on operating leases ........          18.18%        20.44%        23.60%        26.44%
Depreciation on operating lease equipment           12.22%        14.54%        16.79%        18.93%
                                                ---------     ---------     ---------     ---------
   Net operating lease margin ............           5.96%         5.90%         6.81%         7.51%
                                                =========     =========     =========     =========
Average Operating Lease Equipment ("AOL")       $ 7,821.2     $ 7,241.1     $ 6,605.0     $ 6,554.8
                                                =========     =========     =========     =========


2004 versus 2003 Results

            o     For the year ended  December  31,  2004,  net  finance  margin
                  improved by $241.8 million or 31 basis points (as a percentage
                  of AEA) from 2003, due primarily to reduced borrowing costs.

            o     Finance income on loans and capital leases, while up in amount
                  from  2003,  declined  as  a  percentage  of  assets,  as  the
                  portfolio  continued  to  reprice in the  relatively  low rate
                  environment.

            o     The  trend  in net  finance  margin  as a  percentage  of AEA,
                  excluding the impact of operating  lease  rentals,  reflects a
                  greater  decline in interest  expense  than in finance  income
                  yield,  primarily  due to the narrowing  (improvement)  of our
                  credit spreads and the  refinancing  of higher-cost  debt. The
                  increase in AEA reflects growth in the latter part of 2003 and
                  in 2004.

            o     Operating  lease  rentals  decreased  by $58.4  million or 226
                  basis points (as a  percentage  of average  operating  leases)
                  from the prior year period,  reflecting a higher proportion of
                  aerospace and rail assets in Capital Finance and the continued
                  soft aerospace rentals (though we have experienced some recent
                  improvement).  These  longer-lived  assets  have lower  rental
                  rates  as a  percentage  of  the  asset  base  than  small  to
                  mid-ticket  leasing assets in Specialty  Finance and Equipment
                  Finance.

            o     Depreciation expense declined similarly from 2003,  reflecting
                  the asset mix change to longer-lived from shorter-term assets.
                  As  a  result  operating  lease  margin  as  a  percentage  of
                  operating  lease  assets was up modestly  from the prior year.
                  See   "Concentrations  --  Operating  Leases"  for  additional
                  information regarding our operating lease assets.


                                       19


2003 versus 2002 Results

            o     Finance  income for 2003  reflected the  continued  decline in
                  market  interest  rates.  However,  interest  expense  did not
                  decline  proportionally with the drop in market interest rates
                  due to the use of bank lines (drawn in 2002) for part of 2003,
                  term debt  issued in 2002 at wider  credit  spreads and excess
                  cash maintained for liquidity purposes. Therefore, net finance
                  margin as  percentage  of AEA decreased in 2003 from the prior
                  periods.

            o     Finance  income as a percentage of AEA declined in each period
                  since 2001. This primarily reflected the drop in U.S. treasury
                  rates of approximately 275 basis points from the first quarter
                  of 2002 through the second quarter of 2003.  Reduced operating
                  lease rentals also contributed to the decline.

            o     Interest  expense as a percentage of AEA also  declined  since
                  2001, as the favorable  impact of lower market  interest rates
                  was  partially  offset  by  wider  borrowing  spreads  and the
                  resultant  higher  cost  of  funding   transactions   executed
                  following the funding base disruption in 2002. At December 31,
                  2003, $4.2 billion in outstanding  commercial  paper was fully
                  supported by undrawn bank facilities. At December 31, 2002 and
                  September  30, 2002,  commercial  paper  outstanding  was $5.0
                  billion and $4.7 billion, respectively, while drawn commercial
                  bank lines were $2.1 billion and $4.0 billion, respectively.

      We regularly  monitor and simulate our degree of interest rate sensitivity
by  measuring  the  repricing  characteristics  of  interest-sensitive   assets,
liabilities,  and derivatives. The Capital Committee reviews the results of this
modeling  periodically.  The interest rate  sensitivity  modeling  techniques we
employ  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,  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 instantaneously 100 basis
points 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.

      An immediate  hypothetical  100 basis point increase in the yield curve on
January 1, 2005 would  reduce net income by an estimated  $20 million  after-tax
over the next twelve months.  A corresponding  decrease in the yield curve would
cause an increase in net income of a like amount.  A 100 basis point increase in
the yield curve on January 1, 2004 would have reduced net income by an estimated
$24 million after tax, while a  corresponding  decrease in the yield curve would
have increased net income by a like amount.  Although  management  believes that
this measure provides an 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  estimated  outcomes  of  our
simulations.  Further,  such simulations do not represent  management's  current
view of future market interest rate movements.


                                       20


      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).

                                               Before Swaps       After Swaps
                                             ----------------  ----------------
Year Ended December 31, 2004
Commercial paper, variable-rate senior
   notes and bank credit facilities ....     $15,138.8  1.88%  $18,337.9  2.59%
Fixed-rate senior and subordinated notes      19,755.6  5.64%   16,556.5  5.08%
                                             ---------         ---------
Composite ..............................     $34,894.4  4.01%  $34,894.4  3.77%
                                             =========         =========
Year Ended December 31, 2003
Commercial paper, variable-rate senior
   notes and bank credit facilities ....     $12,352.1  1.83%  $15,942.0  2.63%
Fixed-rate senior and subordinated notes      20,002.0  6.06%   16,412.1  5.82%
                                             ---------         ---------
Composite ..............................     $32,354.1  4.45%  $32,354.1  4.25%
                                             =========         =========
Three Months Ended December 31, 2002
Commercial paper, variable-rate senior
   notes and bank credit facilities ....     $12,344.2  2.09%  $13,103.1  2.82%
Fixed-rate senior and subordinated notes      18,055.3  6.20%   17,296.4  5.87%
                                             ---------         ---------
Composite ..............................     $30,399.5  4.54%  $30,399.5  4.56%
                                             =========         =========
Year Ended September 30, 2002
Commercial paper, variable-rate senior
   notes and bank credit facilities ....     $17,087.2  2.34%  $14,813.2  2.55%
Fixed-rate senior and subordinated notes      16,764.8  6.11%   19,038.8  5.90%
                                             ---------         ---------
Composite ..............................     $33,852.0  4.21%  $33,852.0  4.43%
                                             =========         =========

      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 the  interest  rate risk been  managed  without  the use of such
swaps.

Net Finance Margin after Provision for Credit Losses (Risk Adjusted Margin)

      The following table summarizes risk adjusted margin, both in amount and as
a percentage of AEA ($ in millions):



                                                       Years Ended         Three Months
                                                       December 31,           Ended       Year Ended
                                                   ---------------------   December 31,  September 30,
                                                     2004         2003        2002           2002
                                                   --------     --------   ------------  -------------
                                                                               
Net finance margin ..........................      $1,569.6     $1,327.8     $344.9        $1,637.1
Provision for credit losses .................         214.2        387.3      133.4           788.3
                                                   --------     --------     ------        --------
Net finance margin after provision for credit
  losses (risk adjusted margin) .............      $1,355.4     $  940.5     $211.5        $  848.8
                                                   ========     ========     ======        ========
As a % of AEA:
Net finance margin ..........................          4.02%        3.71%      4.22%           4.57%
Provision for credit losses .................          0.55%        1.08%      1.64%           2.20%
                                                   --------     --------     ------        --------
Net finance margin after provision for credit
  losses (risk adjusted margin) .............          3.47%        2.63%      2.58%           2.37%
                                                   ========     ========     ======        ========


      The  improvement  in 2004  primarily  reflects  the  previously  discussed
improvement in net finance margin, as well as a benefit from lower  charge-offs,
which is  discussed  further in "Credit  Metrics".  Excluding  the impact of the
reduction to the specific  telecommunications  reserve in the fourth  quarter of
2004,  the risk  adjusted  margin as a percentage  of AEA was 3.36% for the year
ended December 31, 2004.  Excluding the additional  credit provisions in 2002 to
establish  reserves for the  telecommunications  and Argentine  exposures,  risk
adjusted  margin as a  percentage  of AEA was 3.38% for the twelve  months ended
September 30, 2002.


                                       21


Other Revenue

      The components of other revenue are set forth in the following table ($ in
millions).

                                     Years Ended    Three Months
                                     December 31,      Ended       Year Ended
                                  ----------------- December 31,  September 30,
                                   2004       2003      2002         2002
                                  ------     ------ ------------  -------------
Fees and other income ..........  $502.9     $586.2    $169.2       $644.5
Factoring commissions ..........   227.0      189.8      55.1        165.5
Gains on sales of leasing
  equipment                        101.6       70.7       8.7         13.6
Gains on securitizations .......    59.1      100.9      30.5        149.0
                                  ------     ------    ------       ------
  Total other revenue ..........  $890.6     $947.6    $263.5       $972.6
                                  ======     ======    ======       ======
Other revenue as a
  percentage of AEA                 2.28%      2.65%     3.22%        2.72%
                                  ======     ======    ======       ======

      We continue to emphasize growth and  diversification  of other revenues to
improve our overall profitability.

      o     Fees and other income include securitization-related  servicing fees
            and accretion,  syndication fees,  miscellaneous fees and gains from
            asset sales.  Securitization-related  fees  declined in 2004.  Other
            fees in 2004 were  essentially flat with the prior year. The drop in
            securitization-related fees, which includes accretion related to our
            retained  interest (net of impairment  charges) and servicing  fees,
            corresponds  to the 14% decline in  securitized  assets during 2004.
            The emphasis on funding home lending  receivables  on-balance  sheet
            results  in a  shift  of  securitization-related  revenues  to  both
            interest  margin and  provision  for credit  losses.  Fees and other
            income were reduced by a $15.7  million loss related to  accelerated
            liquidation  of the  manufactured  housing  portfolio  in the fourth
            quarter of 2004.

      o     The trend of higher factoring  commissions  reflects strong volumes,
            benefiting from two large  acquisitions  completed during the latter
            part of 2003.

      o     Gains on sales of equipment  improved  sharply from prior periods as
            we saw some  firming of  equipment  prices,  and higher gains across
            virtually all leasing  businesses.  The improvement was most notable
            in  Equipment  Finance and in the  international  unit of  Specialty
            Finance-commercial.

      o     Securitization  gains  decreased in 2004, due to both a lower volume
            of receivables securitized and reduced gains on amounts securitized.
            The volume decline included a $262 million drop in Specialty Finance
            -- commercial  assets sold.  Additionally,  in 2004, we continued to
            fund home lending  growth  entirely  on-balance  sheet,  versus $489
            million of home lending  assets that were  securitized  in 2003. The
            lower gain as a percentage  of volume in 2004 is primarily  due to a
            higher  proportion  of, and tighter  spreads on, vendor  receivables
            sold.  Securitization gains were 4.8% of pretax income in 2004, down
            from 10.8% in 2003. We continue to target  securitization gains at a
            maximum of 15% of pretax income.

      The   following   table   presents   information    regarding   gains   on
securitizations ($ in millions):



                                                 Years Ended        Three Months
                                                 December 31,          Ended       Year Ended
                                              ------------------    December 31,  September 30,
                                                2004      2003          2002          2002
                                              --------  --------    ------------  -------------
                                                                       
Total volume securitized ..................   $4,434.5  $5,320.2     $ 1,189.3     $ 7,668.5
Gains .....................................   $   59.1  $  100.9     $    30.5     $   149.0
Gains as a percentage of volume securitized       1.33%     1.90%         2.57%         1.94%
Gains as a percentage of pre-tax income ...        4.8%     10.8%         12.9%         16.9%
Securitized assets ........................   $8,309.7  $9,651.7     $10,482.4     $11,234.7
Retained interest in securitized assets ...   $1,155.6  $1,309.3     $ 1,355.9     $ 1,313.7



                                       22


Reserve for Credit Losses

      The provision for credit losses and reserve for credit losses is presented
in the following table ($ in millions).



                                                      Years Ended     Three Months
                                                      December 31,        Ended       Year Ended
                                                    ---------------   December 31,   September 30,
                                                     2004     2003        2002          2002
                                                    ------   ------   ------------   -------------
                                                                           
Balance beginning of period .....................   $643.7   $760.8      $777.8        $492.9
                                                    ------   ------      ------        ------
Provision for credit losses -- finance
  receivables ...................................    270.0    408.8       133.4         453.3
Provision for credit losses -- specific
  reserving actions(1) ..........................    (55.8)   (21.5)       --           335.0
                                                    ------   ------      ------        ------
Total provision for credit losses ...............    214.2    387.3       133.4         788.3
Reserves relating to acquisitions, other(2) .....     60.5     17.5         4.1         (11.1)
                                                    ------   ------      ------        ------
  Additions to reserve for credit losses, net ...    274.7    404.8       137.5         777.2
                                                    ------   ------      ------        ------
Net credit losses -- excluding
  telecommunications and Argentine charge-offs:
Specialty Finance -- commercial .................    111.8    135.6        28.3         102.3
Specialty Finance -- consumer ...................     41.0     27.2         6.1          24.4
Commercial Finance ..............................     41.3     69.4        33.5          88.2
Equipment Finance ...............................     53.2    125.7        69.8         246.3
Capital Finance .................................     13.8     16.0         1.3           0.2
                                                    ------   ------      ------        ------
Net credit losses -- prior to telecommunication
  and Argentine charge-offs .....................    261.1    373.9       139.0         461.4
Telecommunications ..............................     40.1     47.0        15.5          30.9
Argentine charge-offs ...........................     --      101.0        --            --
                                                    ------   ------      ------        ------
  Total net credit losses .......................    301.2    521.9       154.5         492.3
Balance end of period ...........................   $617.2   $643.7      $760.8        $777.8
                                                    ======   ======      ======        ======
Reserve for credit losses as a percentage of
  finance receivables ...........................     1.76%    2.06%       2.75%         2.73%
                                                    ======   ======      ======        ======
Reserve for credit losses as a percentage of past
  due receivables (60 days or more)(3) ..........    101.5%    95.2%       76.0%         72.7%
                                                    ======   ======      ======        ======
Reserve for credit losses as a percentage of
  non-performing assets(4) ......................    114.4%    95.2%       70.1%         68.2%
                                                    ======   ======      ======        ======


--------------------------------------------------------------------------------

(1)   The   2002   amount   consists   of   reserving    actions   relating   to
      telecommunications   ($200.0  million)  and  Argentine  exposures  ($135.0
      million).  The 2003 amount  reflects a reduction of the Argentine  reserve
      after substantial work-out efforts were completed.  This amount was offset
      by an increase to the provision for credit losses -- finance  receivables.
      The   2004   amount   includes   a   $43.3   million   reduction   to  the
      telecommunications  specific reserve and a $12.5 million  reduction of the
      Argentine  reserve  following  the sale of the  remaining  assets  in this
      portfolio.  The  Argentine  reduction  was  offset by an  increase  to the
      provision for credit losses -- finance receivables.

(2)   Reserves  related to  acquisitions,  other in 2004  includes of provisions
      relating to bulk  portfolio  purchases  ($34.7  million)  and the European
      Vendor Finance acquisition ($19.2 million).

(3)   The reserve for credit losses as a percentage of past due  receivables (60
      days or more),  excluding  telecommunication  and  Argentine  reserves and
      corresponding  delinquencies,  was 98.0% at December  31,  2004,  80.6% at
      December 31, 2003,  49.0% at December 31, 2002 and 45.3% at September  30,
      2002.

(4)   The reserve for credit  losses as a percentage of  non-performing  assets,
      excluding  telecommunication  and  Argentine  reserves  and  corresponding
      non-performing  assets, was 114.5% at December 31, 2004, 84.7% at December
      31, 2003, 48.9% at December 31, 2002 and 47.2% at September 30, 2002.

      The  decreased  provision  for 2004 in relation  to 2003  reflects a $43.3
million reduction in the specific  telecommunications reserve, lower charge-offs
and improving credit metrics.  The increase in reserves relating to acquisitions
during 2004 is due primarily to the European  vendor  leasing  business and home
lending bulk  portfolio  purchases.  The decreased  provision for the year ended
December  31, 2003 in relation to 2002  reflects  lower  charge-offs  (excluding
Argentina) and improving  credit metrics.  The increased  provision for the year
ended September 30, 2002 reflects higher charge-off levels and reserving actions
relating  to  exposures  in  the  telecommunications  portfolio  ($200  million)
primarily  related to Competitive  Local Exchange  Carriers  ("CLECs"),  and our
Argentine exposure ($135 million,  detailed further below). See "Credit Metrics"
for further discussion.


                                       23


      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):

                      December 31, 2004   December 31, 2003   December 31, 2002
                      -----------------   -----------------   -----------------
                        Amount      %      Amount       %      Amount      %
                        ------    ----     ------     ----     ------     ----
Finance receivables .   $594.0    1.71%    $524.6     1.71%    $472.2     1.77%
Telecommunications(1)     23.2    6.92%     106.6    19.16%     153.6    22.40%
Argentina(2) ........       --      --       12.5    55.07%     135.0    73.11%
                        ------             ------              ------
Total ...............   $617.2    1.76%    $643.7     2.06%    $760.8     2.75%
                        ======             ======              ======

--------------------------------------------------------------------------------
(1)   Percentage of finance receivables in telecommunications portfolio.

(2)   Percentage of finance receivables in Argentina.

Reserve for Credit Losses -- Finance Receivables

      The reserve for credit losses is determined  based on three key components
(1) specific  reserves for  collateral  and cash flow  dependent  loans that are
impaired  under SFAS 114,  (2)  reserves for  estimated  losses  inherent in the
portfolio based upon historical and projected credit trends and (3) reserves for
economic environment and other factors.

      The  reserve  included  specific  reserves,   excluding  telecommunication
accounts,  relating to impaired loans of $42.4 million, $66.4 million, and $52.9
million at December 31, 2004,  2003 and 2002. The portion of the reserve related
to inherent estimated loss and estimation risk reflects our evaluation of trends
in our key credit metrics, as well as our assessment of risk in certain industry
sectors, including commercial aerospace.

      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  values,  among other things.  Therefore,  changes in
economic  conditions or credit  metrics,  including past due and  non-performing
accounts,  or  other  events  affecting  specific  obligors  or  industries  may
necessitate  additions  or  reductions  to the  consolidated  reserve for credit
losses.  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.

      Based on currently  available  information,  management  believes that our
total reserve for credit losses is adequate.

Reserve for Credit Losses -- Telecommunications

      In light of the improved  performance of CIT's  Competitive Local Exchange
Carriers ("CLEC") portfolio and the  telecommunications  industry generally,  as
well as the continued reduction in outstanding receivables, the specific reserve
related to the telecommunications  portfolio was reduced by $43.3 million during
the quarter ended  December 31, 2004,  reflecting  lower  non-performing  loans,
lower risk of loss  remaining in the portfolio and improved  market  valuations.
The December 2004 quarter marked the first period since the establishment of the
specific  telecommunications  reserve  that there were no  charge-offs  recorded
against that reserve during a quarter.

      CIT  originally  added  $200.0  million to its reserve  for credit  losses
during  the  quarter  ended  June  30,  2002 in light  of  deterioration  in the
telecommunications sector, particularly with respect to CIT's CLEC portfolio. In
subsequent  periods,  CIT recorded net  charge-offs of $134 million against this
specific reserve.


                                       24


      Our  telecommunications  portfolio is included in  "Communications" in the
industry  composition  table  included  in  Note  5  --  Concentrations  to  the
Consolidated  Financial Statements.  This portfolio includes lending and leasing
transactions  to  the   telecommunications   sector.   Lending  and  leasing  of
telecommunication  equipment  to  non-telecom  companies  is  conducted  in  our
Specialty  Finance  business  and is  categorized  according  to the  customer's
("obligor's")  industry in the industry  composition table.  Certain statistical
data is presented in the following table ($ in millions).

                                        December 31,  December 31,  December 31,
                                           2004          2003          2002
                                        ------------  ------------  ------------
CLEC accounts .........................   $112.7        $197.8        $262.3
Other telecommunication accounts ......    222.5         381.2         447.8
                                          ------        ------        ------
Total telecommunication portfolio .....   $335.2        $579.0        $710.1
                                          ======        ======        ======
Portfolio as a % of total financing
  and leasing assets ..................      0.7%          1.5%          2.0%
Number of accounts ....................       26            44            52
Top 10 accounts .......................   $202.8        $253.4        $264.5
Largest account exposure ..............   $ 29.7        $ 31.0        $ 32.9
Accounts 60+ days past due ............   $  2.1        $ 25.7        $ 37.3
Non-performing accounts ...............   $ 21.0        $ 57.2        $120.2
Number of non-performing accounts .....        5             6            10
Non-performing accounts as a
  percentage of portfolio .............      6.3%          9.9%         16.9%

Reserve for Credit Losses -- Argentina

      During the second quarter of 2004, we completed the  previously  announced
sale of our Argentine  portfolio to an Argentine bank at a modest gain. With the
completion of this transaction, we transferred the remaining specific reserve of
$12.5 million to the Reserve for Credit Losses -- Finance Receivables.

      In the  first  half of 2002,  we  established  a $135.0  million  specific
reserve for Argentine exposure 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.  During the fourth quarter of 2003,  based on the  substantial
progress  with  collection  and work out efforts,  we recorded a $101.0  million
charge-off  against this specific  reserve and transferred  $21.5 million to the
Reserve for Credit Losses -- Finance Receivables.


                                       25


Credit Metrics

Net Charge-offs

      Net  charge-offs,  both in amount and as a percentage  of average  finance
receivables,  are  shown  in  total  and  for  the  liquidating,  Argentine  and
telecommunications portfolios in the following tables ($ in millions):



                                                         Before Liquidating,      Liquidating,
                                                           Argentine and         Argentine and
                                            Total        Telecommunications    Telecommunications
                                       ---------------   ------------------    ------------------
                                                                          
Year Ended December 31, 2004
Specialty Finance -- commercial ....   $111.0    1.32%      $ 85.2    1.10%      $ 25.8     3.97%
Commercial Finance .................     82.2    0.69%        41.3    0.36%        40.9     9.59%
Equipment Finance ..................     53.2    0.84%        51.0    0.82%         2.2     1.79%
Capital Finance ....................     13.8    0.50%        13.8    0.50%          --       --
                                       ------               ------               ------
   Total Commercial Segments .......    260.2    0.88%       191.3    0.68%        68.9     5.75%
Specialty Finance -- consumer ......     41.0    1.11%        41.0    1.11%          --       --
                                       ------               ------               ------
   Total ...........................   $301.2    0.91%      $232.3    0.73%      $ 68.9     5.75%
                                       ======               ======               ======
Year Ended December 31, 2003
Specialty Finance -- commercial ....   $239.8    2.96%      $111.8    1.56%      $128.0    13.58%
Commercial Finance .................    107.9    1.02%        69.4    0.71%        38.5     4.85%
Equipment Finance ..................    125.7    2.03%        94.8    1.62%        30.9     8.34%
Capital Finance ....................     21.3    0.75%        16.0    0.56%         5.3       --
                                       ------               ------               ------
   Total Commercial Segments .......    494.7    1.79%       292.0    1.14%       202.7     9.62%
Specialty Finance -- consumer ......     27.2    1.53%        27.2    1.53%          --       --
                                       ------               ------               ------
   Total ...........................   $521.9    1.77%      $319.2    1.17%      $202.7     9.62%
                                       ======               ======               ======
Three Months Ended December 31, 2002
Specialty Finance -- commercial ....   $ 28.3    1.62%      $ 21.2    1.38%      $  7.1     3.28%
Commercial Finance .................     49.0    2.38%        33.5    1.78%        15.5     8.75%
Equipment Finance ..................     69.8    3.78%        56.5    3.32%        13.3     9.25%
Capital Finance ....................      1.3    0.18%         1.3    0.18%          --       --
                                       ------               ------               ------
   Total Commercial Segments .......    148.4    2.32%       112.5    1.92%        35.9     6.68%
Specialty Finance -- consumer ......      6.1    2.46%         6.1    2.46%          --       --
                                       ------               ------               ------
   Total ...........................   $154.5    2.32%      $118.6    1.94%      $ 35.9     6.68%
                                       ======               ======               ======
Year Ended September 30, 2002
Specialty Finance -- commercial ....   $102.3    1.42%      $ 70.7    1.13%      $ 31.6     3.36%
Commercial Finance .................    106.6    1.19%        88.2    1.06%        18.4     2.78%
Equipment Finance ..................    258.8    2.97%       168.5    2.22%        90.3     8.02%
Capital Finance ....................      0.2    0.01%         0.2    0.01%          --       --
                                       ------               ------               ------
   Total Commercial Segments .......    467.9    1.68%       327.6    1.31%       140.3     5.15%
Specialty Finance -- consumer ......     24.4    1.36%        24.4    1.36%          --       --
                                       ------               ------               ------
   Total ...........................   $492.3    1.67%      $352.0    1.32%      $140.3     5.15%
                                       ======               ======               ======


2004 Trends

      o     Specialty Finance -- commercial  charge-offs  declined from 2003 due
            to higher  recoveries  overall  and  improved  credit in the  vendor
            programs and in Europe.  These  improvements  were in part offset by
            approximately  $15  million in  charge-offs  taken  with  respect to
            customers of NorVergence, Inc., a bankrupt vendor.

      o     Commercial Finance  charge-offs were below the prior year reflecting
            the  stronger  economy.  While  occurring  in both  the  asset-based
            lending and  factoring  businesses,  the  decline  was  particularly
            notable in Business  Credit.  In conjunction with the combination of
            the  former   Structured   Finance   into   Capital   Finance,   the
            communications and media portfolio was transferred to the Commercial
            Finance  segment.  As a result,  charge-offs  against  the  specific
            telecommunications  reserve  are  reflected  in  this  segment.  See
            discussion  in "Reserve for Credit  Losses"  regarding  the specific
            reserve for telecommunications.

      o     Equipment Finance  improvement  continued  throughout 2004.  Reduced
            charge-offs  across all  product  lines in both the U.S.  and Canada
            reflected lower non-performing  assets and strengthening  collateral
            values.


                                       26


      o     Capital  Finance  charge-offs for 2004 were primarily in the project
            finance portfolio.

      o     Specialty Finance -- consumer home lending charge-offs,  while up in
            amount,  were down as a percentage  of average  finance  receivables
            from the prior year, reflecting portfolio growth.

2003 Trends

      o     Specialty  Finance  2003  commercial  charge-offs  include  a $101.0
            million  Argentine   write-off,   which  reflected  the  substantial
            progress  of  collection  and  work  out  efforts  in the  Argentine
            portfolio. Excluding Argentina and liquidating portfolios, Specialty
            Finance --  commercial  charge-offs  were 1.56% as a  percentage  of
            average finance receivables for 2003.

      o     Commercial Finance  charge-offs fell below 2002 levels.  Charge-offs
            in 2002 included amounts  associated with several loan work-outs due
            to  the  weaker  economic   trends,   while  2003  amounts  included
            significant charge-offs in the telecommunication portfolio.

      o     Equipment  Finance  improvement was considerable in relation to 2002
            due to  reductions  across all  product  lines in both the U.S.  and
            Canada.

      o     The increased Capital Finance  charge-offs were primarily the result
            of an $11.3 million charge-off recorded to write down the value of a
            waste-to-energy  project  following  bankruptcy  proceedings and the
            renegotiation of the related contracts.

      The following  table sets forth  certain  information  concerning  our net
charge-offs   on  a  managed  basis,   including  both  owned  and   securitized
receivables,  both in amount  and as a  percentage  of average  managed  finance
receivables ($ in millions):



                                     Year Ended          Year Ended      Three Months Ended      Year Ended
                                 December 31, 2004   December 31, 2003    December 31, 2002  September 30, 2002
                                 -----------------   -----------------    -----------------  ------------------
                                                                                  
Specialty Finance -- commercial   $155.5    1.25%    $299.5      2.44%    $ 43.7      1.44%   $185.8      1.44%
Commercial Finance ............     82.2    0.69%     107.9      1.02%      49.0      2.38%    106.6      1.19%
Equipment Finance .............     97.7    1.06%     210.8      2.14%     105.4      3.63%    457.3      3.49%
Capital Finance ...............     13.8    0.50%      21.3      0.75%       1.3      0.18%      0.2      0.01%
                                  ------             ------               ------              ------
  Total Commercial Segments ...    349.2    0.96%     639.5      1.80%     199.4      2.30%    749.9      2.05%
Specialty Finance -- consumer .     60.7    1.17%      40.6      1.02%       6.8      1.03%     30.5      0.83%
                                  ------             ------               ------              ------
  Total .......................   $409.9    0.99%    $680.1      1.72%    $206.2      2.21%   $780.4      1.94%
                                  ======             ======               ======              ======


      The trends over the periods shown in the table above are driven largely by
the  fluctuations in the owned portfolio as discussed  previously.  In addition,
charge-offs  on a managed  basis  reflected  the  following  with respect to the
securitized portfolios:

      o     Specialty Finance -- commercial charge-offs declined sequentially in
            both  amount  and  percentage  in all  periods  in the table  above.
            Charge-offs related to the securitized  portfolios for 2004 declined
            approximately  $15 million or 35 basis points from 2003,  reflecting
            the higher proportion of vendor assets sold.

      o     Equipment Finance  charge-offs on securitized  portfolios  similarly
            declined both in amount and  percentage for all periods shown above.
            Charge-off  rates in these  portfolios  remained  higher than in the
            owned  portfolio,  as the 2004 percentage  improved roughly 80 basis
            points from 2003.

      o     Specialty  Finance -- consumer  home lending  securitization-related
            charge-offs increased approximately $6 million or 70 basis points as
            a percentage of securitized assets from 2003.


                                       27


Past Due Loans and Non-performing Assets

      The following table sets forth certain information concerning our past due
(sixty days or more) and  non-performing  assets and the related  percentages of
finance receivables ($ in millions):



                                  December 31, 2004   December 31, 2003   December 31, 2002
                                  -----------------   -----------------   -----------------
                                                                    
Past Dues:
Specialty Finance -- commercial   $ 283.3      3.22%  $   287.3    3.59%  $  240.8    3.44%
Commercial Finance ............     124.7      1.06%      131.9    1.14%     222.7    2.38%
Equipment Finance(1) ..........      50.1      0.79%      137.9    2.18%     359.3    4.88%
Capital Finance ...............      33.5      1.13%       30.5    1.11%     102.7    3.48%
                                  -------             ---------           --------
   Total Commercial Segments ..     491.6      1.64%      587.6    2.05%     925.5    3.47%
Specialty Finance -- consumer .     116.4      2.27%       88.7    3.33%      75.8    7.87%
                                  -------             ---------           --------
   Total ......................   $ 608.0      1.73%  $   676.3    2.16%  $1,001.3    3.63%
                                  =======             =========           ========
Non-performing Assets:
Specialty Finance -- commercial   $ 165.9      1.88%  $   179.7    2.25%  $  156.7    2.24%
Commercial Finance ............     112.1      0.95%      132.5    1.15%     279.9    2.99%
Equipment Finance(1) ..........     131.2      2.06%      218.3    3.46%     403.5    5.48%
Capital Finance ...............      11.1      0.38%       49.7    1.81%     162.8    5.52%
                                  -------             ---------           --------
   Total Commercial Segments ..     420.3      1.40%      580.2    2.03%   1,002.9    3.76%
Specialty Finance -- consumer .     119.3      2.32%       96.3    3.61%      82.9    8.61%
                                  -------             ---------           --------
   Total ......................   $ 539.6      1.54%  $   676.5    2.16%  $1,085.8    3.93%
                                  =======             =========           ========
Non accrual loans .............   $ 458.4             $   566.5           $  946.4
Repossessed assets ............      81.2                 110.0              139.4
                                  -------             ---------           --------
   Total non-performing assets    $ 539.6             $   676.5           $1,085.8
                                  =======             =========           ========


--------------------------------------------------------------------------------
(1)   Equipment  Finance  non-performing  assets include  accounts that are less
      than sixty days past due.

2004 Trends

      The 2004  delinquency  levels improved at a lower rate year over year than
in 2003.

      o     Specialty Finance -- commercial  delinquency was essentially flat in
            dollar  amount  with  last  year,  but  down  in  percentage  due to
            portfolio   growth.   Improvement  in  the  Small  Business  Lending
            portfolio was offset by an increase in the vendor programs.

      o     Commercial  Finance past due levels were down modestly from 2003 due
            to improvement in the Business Credit (asset-based lending) unit and
            in  the  telecommunications  portfolio.  An  increase  in  factoring
            delinquency (primarily one large credit) offset these declines.

      o     Equipment Finance delinquency reflected continued improvement across
            virtually all product lines in relation to 2003.

      o     Capital Finance  improvement from 2003 included lower delinquency in
            the project  finance  portfolio,  though  delinquency  was up in the
            regional aerospace portfolio.

      o     Specialty  Finance -- consumer  home lending  delinquency  was up in
            dollar amount but down as a percentage of finance  receivables  from
            2003,  reflecting a return to  on-balance  sheet funding of the home
            lending   portfolio.   Delinquency  on  a  managed  basis  has  been
            relatively stable in percentage terms over the periods presented.

      Similarly,  the rate of  improvement  in  non-performing  assets slowed in
2004,  reflecting the same trends discussed above. The more dramatic improvement
in Capital Finance non-performing assets reflected the work-out of a significant
project  finance  account.   Non-performing   telecommunications   accounts  (in
Commercial Finance) totaled $21.0 million and $57.2 million at December 31, 2004
and 2003, respectively.


                                       28


2003 Trends

      The  December  31,  2003  delinquency  rate  of  2.16%  marked  the  fifth
consecutive quarter of improvement and was the lowest level since December 1999.
Past due  loans  were down  across  virtually  all  segments  with the  greatest
improvement in Equipment  Finance.  The  fluctuations  in Equipment  Finance and
Specialty Finance -- commercial also reflect the transfer in March 2003 of small
business  loans and  leases  from  Equipment  Finance  to  Specialty  Finance --
commercial.   Past  due  accounts  related  to  these   transferred   portfolios
approximated  $66  million,  $79 million and $65 million at December  31,  2003,
December 31, 2002 and September 30, 2002,  respectively.  Prior periods have not
been restated to reflect this transfer.

      o     Absent the transfer,  Specialty  Finance --  commercial  delinquency
            improved,   reflecting  the  continued   decline  in  past  dues  in
            International   portfolios,   including  European  operations  where
            servicing was centralized during 2003.

      o     The  Commercial  Finance  decline  from both 2002 periods was due to
            improvements  in  both  the  Commercial  Services   (factoring)  and
            Business Credit (asset-based lending) units.

      o     Capital Finance delinquency  improved $76.0 million during 2003, due
            to the return to earning  status of a  waste-to-energy  project  and
            lower delinquency in the aerospace portfolio.

      o     Though up in amount from 2002,  Specialty  Finance -- consumer  home
            lending delinquency as a percentage of finance receivables improved,
            reflecting a return to  on-balance  sheet  growth in this  portfolio
            during  2003.  This is in  contrast  to  2002  when  higher  quality
            consumer assets were  securitized to meet funding  requirements.  As
            shown in the table below,  consumer  delinquency  on a managed basis
            has been relatively stable in percentage over the periods presented.

      Non-performing  assets also  declined  and reached the lowest  level since
1999,   reflecting  the  same  trends  discussed  above,   namely   considerable
improvement in the Equipment Finance and Capital Finance  segments.  In addition
to the above mentioned  waste-to-energy  project,  the Capital Finance reduction
from  December  31,  2002 also  reflected  the  conversion  of  United  Airlines
receivables  ($95.7  million)  to  short-term  operating  leases  following  the
carrier's   December   2002  Chapter  11   bankruptcy   filing.   Non-performing
telecommunications  accounts (in Commercial  Finance)  totaled $57.2 million and
$120.2 million at December 31, 2003, and December 31, 2002, respectively.

      Managed  past due loans in dollar  amount and as a  percentage  of managed
financial assets are shown in the table below ($ in millions).



                                    December 31, 2004   December 31, 2003    December 31, 2002
                                    -----------------   -----------------    -----------------
                                                                       
Specialty Finance -- commercial      $402.1    2.82%    $  418.4    3.19%    $  371.7    3.07%
Commercial Finance ..............     124.7    1.06%       131.9    1.14%       222.7    2.38%
Equipment Finance ...............      90.3    0.96%       243.6    2.49%       545.7    4.78%
Capital Finance .................      33.5    1.13%        30.5    1.11%       102.7    3.48%
                                     ------             --------             --------
  Total Commercial Segments .....     650.6    1.69%       824.4    2.22%     1,242.8    3.47%
Specialty Finance -- consumer ...     227.8    3.45%       197.6    4.22%       152.8    4.36%
                                     ------             --------             --------
  Total .........................    $878.4    1.95%    $1,022.0    2.44%    $1,395.6    3.55%
                                     ======             ========             ========


      Managed past due loans decreased both in dollar amount and as a percentage
of managed financial  assets,  reflecting the same factors that are discussed in
the owned delinquency analysis.


                                       29


Salaries and General Operating Expenses

      The  efficiency  ratio and the ratio of  salaries  and  general  operating
expenses to average managed assets ("AMA") are summarized in the following table
($ in millions).



                                                      Years Ended          Three Months
                                                      December 31,            Ended       Year Ended
                                               ------------------------    December 31,  September 30,
                                                  2004           2003          2002         2002(3)
                                               ----------     ---------    ------------  -------------
                                                                              
Salaries and employee benefits .............   $    612.2     $   529.6     $   126.8     $   517.4
Other general operating expenses ...........        434.2         383.3         105.8         380.6
                                               ----------     ---------     ---------     ---------
Salaries and general operating expenses ....   $  1,046.4     $   912.9     $   232.6     $   898.0
                                               ==========     =========     =========     =========
Efficiency ratio(1) ........................         42.6%         41.7%         38.6%         34.9%
Salaries and general operating expenses as a
   percentage of AMA(2) ....................         2.20%         1.99%         0.52%         1.91%
Average Managed Assets .....................   $ 47,519.3     $45,809.3     $44,361.8     $47,126.9


--------------------------------------------------------------------------------
(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 CIT.

(3)   The  September  30, 2002 data  excludes  expenses  relating to TCH, a Tyco
      acquisition  company  that had  temporary  status  with  respect to Tyco's
      acquisition of CIT.

      Salaries and general  operating  expenses for the year ended  December 31,
2004 increased from 2003 primarily due to the following:  higher incentive-based
compensation (including restricted stock awards); increase in professional fees,
including higher  compliance-related  costs related to the  Sarbanes-Oxley  Act;
increased benefit expense;  increased  maintenance expenses related to operating
lease equipment and higher marketing  expenses.  Salaries and general  operating
expenses for the year ended  December 31, 2003  increased from the prior periods
primarily  due  to  incentive-based  compensation  and  other  employee  benefit
expenses,  as well  as from  expenses  associated  with  our  return  to  public
ownership.

      Personnel  totaled  approximately  5,860 at December 31, 2004  compared to
5,800 at December 31, 2003,  5,835 at December 31, 2002,  and 5,850 at September
30, 2002.  The increase  during 2004 was  primarily  due to the European  vendor
finance business acquisition.

      The  efficiency  ratio  deteriorated  for the year ended December 31, 2004
compared  to 2003,  as the rate of expense  increase  outpaced  revenue  growth.
Efficiency  ratio  improvements in both Specialty  Finance segments in 2004 were
offset by a modest increase in the other segments and higher corporate  expense.
The  deterioration  in the efficiency ratio for the year ended December 31, 2003
and three months  ended  December  31, 2002  compared to  September  30, 2002 is
principally the result of lower revenues in the respective  periods.  Similarly,
the deterioration in the ratio of salaries and general operating expenses to AMA
from the  September  30,  2002 fiscal year  reflects  reduced  levels of average
managed assets.

      Business unit and  corporate  management  monitor  expenses  closely,  and
actual results are reviewed monthly in comparison to business plan and forecast.
An approval  and review  procedure is in place for major  capital  expenditures,
such  as  computer   equipment  and  software,   including   post-implementation
evaluations.

      Improvement in the efficiency  ratio is one of management's  primary goals
for 2005 and several initiatives are underway to reduce costs,  including system
consolidations and process efficiency improvements. We have the capacity to grow
assets without commensurate expense increases, and we expect  compliance-related
expenses  to  decline  from  2004.  Additionally,  we remain  focused on growing
non-spread revenue.

Gain on Redemption of Debt

      In  January  2004 and  December  2003,  we called at par $1.25  billion of
long-term  debt  securities.  These  notes  were  listed  on the New York  Stock
Exchange  under the ticker  symbols CIC and CIP and were commonly known as PINEs
("Public  Income  Notes").  The  securities  carried  coupon  rates of 8.25% and
8.125%,  but were marked down to a market  interest rate yield of  approximately
7.5% in our financial  statements through purchase  accounting.  In light of the
high coupon rates, we called the securities for redemption pursuant to the terms
outlined in the


                                       30


prospectuses.  The call of $512 million of notes on January 15, 2004 resulted in
a pretax gain of $41.8 million ($25.5 million after tax) in the first quarter of
2004.  The December 2003 call of $735 million of notes resulted in a pretax gain
of $50.4 million ($30.8 million after tax) during the fourth quarter of 2003.

Income Taxes

      The  following  table sets forth the certain  information  concerning  our
income taxes ($ in millions):

                                       Years Ended   Three Months
                                       December 31,     Ended       Year Ended
                                      -------------- December 31,  September 30,
                                       2004    2003      2002         2002
                                      ------  ------ ------------  -------------
Provision for income taxes .......... $483.2  $365.0    $92.0        $374.0
Effective tax rate ..................   39.0%   39.0%    39.0%         (5.9%)
Effective tax rate excluding goodwill
  impairment and TCH results ........   39.0%   39.0%    39.0%         38.1%

      The effective tax rate exceeds the U.S.  Federal tax rate of 35% primarily
due to state and local, and foreign income taxes.

      At  December  31,  2004,  CIT had U.S.  federal  net  operating  losses of
approximately $2.0 billion,  which expire in various years beginning in 2011. In
addition, CIT has various state net operating losses that will expire in various
years beginning in 2005.  Federal and state  operating  losses may be subject to
annual use limitations  under section 382 of the Internal  Revenue Code of 1986,
as amended, and other limitations under certain state laws.  Management believes
that CIT will have  sufficient  taxable  income  in  future  years and can avail
itself of tax  planning  strategies  in order to utilize  these  federal  losses
fully.  Accordingly,  we do not believe a valuation  allowance is required  with
respect to these federal net operating losses. As of December 31, 2004, based on
management's  assessment  as to  realizability,  the net deferred tax  liability
includes a valuation  allowance of approximately  $7.4 million relating to state
net operating losses.

      CIT has open tax years in the U.S.,  Canada and other  jurisdictions  that
are currently  under  examination  by the  applicable  taxing  authorities,  and
certain tax years that may in the future be subject to  examination.  Management
periodically  evaluates  the adequacy of our related tax  reserves,  taking into
account our open tax return positions, tax assessments received, tax law changes
and  third  party  indemnifications.  We  believe  that  our  tax  reserves  are
appropriate.  The  final  determination  of tax  audits  could  affect  our  tax
reserves.

      We are currently  evaluating certain  provisions  included in the American
Jobs  Creation  Act of 2004 that could  result in an  increase  in our  business
activity in certain foreign  jurisdictions.  These  provisions,  if implemented,
could result in a reduction in our future effective tax rate.

      See Item 9A. Controls and Procedures for a discussion of internal controls
relating to income taxes.


                                       31


Financing and Leasing Assets

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



                                                                                              Percentage Change
                                                                                          --------------------------
                                            December 31,   December 31,    December 31,   Dec. '04 vs.   Dec. '03 vs.
                                                2004           2003            2002         Dec '03        Dec. '02
                                            -----------    -----------     -----------    ------------   ------------
                                                                                              
Specialty Finance -- commercial Segment
   Finance receivables ................      $ 8,805.7      $ 7,996.5       $ 7,002.5         10.1%          14.2%
   Operating lease equipment, net .....        1,078.7          959.5         1,257.3         12.4          (23.7)
   Finance receivables held for sale ..        1,288.4          548.1           764.3        135.1          (28.3)
                                             ---------      ---------       ---------
     Owned assets .....................       11,172.8        9,504.1         9,024.1         17.6            5.3
   Finance receivables securitized and
     managed by CIT ...................        4,165.5        4,557.9         4,332.6         (8.6)           5.2
                                             ---------      ---------       ---------
   Managed assets .....................       15,338.3       14,062.0        13,356.7          9.1            5.3
                                             ---------      ---------       ---------
Specialty Finance -- consumer Segment
   Finance receivables -- home lending         4,896.8        2,513.1           962.7         94.9          161.0
   Finance receivables -- other .......          236.0          151.2            --           56.1           --
   Finance receivables held for sale ..          241.7          150.0           330.0         61.1          (54.5)
                                             ---------      ---------       ---------
     Owned assets .....................        5,374.5        2,814.3         1,292.7         91.0          117.7
   Home lending receivables
     securitized and managed by CIT ...        1,228.7        1,867.6         2,213.6        (34.2)         (15.6)
                                             ---------      ---------       ---------
   Managed assets .....................        6,603.2        4,681.9         3,506.3         41.0           33.5
                                             ---------      ---------       ---------
Commercial Finance Segment
   Commercial Services
     Finance receivables ..............        6,204.1        6,325.8         4,392.5         (1.9)          44.0
   Business Credit
     Finance receivables ..............        5,576.3        5,247.1         4,912.7          6.3            6.8
                                             ---------      ---------       ---------
       Owned assets ...................       11,780.4       11,572.9         9,305.2          1.8           24.4
                                             ---------      ---------       ---------
Equipment Finance Segment
   Finance receivables ................        6,373.1        6,317.9         7,357.8          0.9          (14.1)
   Operating lease equipment, net .....          440.6          419.6           668.3          5.0          (37.2)
   Finance receivables held for sale ..          110.7          220.2           119.1        (49.7)          84.9
                                             ---------      ---------       ---------
     Owned assets .....................        6,924.4        6,957.7         8,145.2         (0.5)         (14.6)
   Finance receivables securitized
     and managed by CIT ...............        2,915.5        3,226.2         3,936.2         (9.6)         (18.0)
                                             ---------      ---------       ---------
   Managed assets .....................        9,839.9       10,183.9        12,081.4         (3.4)         (15.7)
                                             ---------      ---------       ---------
Capital Finance Segment
   Finance receivables ................        2,956.2        2,748.6         2,993.1          7.6           (8.2)
   Operating lease equipment, net .....        6,771.6        6,236.4         4,779.0          8.6           30.5
                                             ---------      ---------       ---------
     Owned assets .....................        9,727.8        8,985.0         7,772.1          8.3           15.6
                                             ---------      ---------       ---------
Other -- Equity Investments ...........          181.0          249.9           335.4        (27.6)         (25.5)
                                             ---------      ---------       ---------
Total
   Finance receivables ................      $35,048.2      $31,300.2       $27,621.3         12.0           13.3
   Operating lease equipment, net .....        8,290.9        7,615.5         6,704.6          8.9           13.6
   Finance receivables held for sale ..        1,640.8          918.3         1,213.4         78.7          (24.3)
                                             ---------      ---------       ---------
   Financing and leasing assets
     excluding equity investments .....       44,979.9       39,834.0        35,539.3         12.9           12.1
   Equity investments (included in
     other assets) ....................          181.0          249.9           335.4        (27.6)         (25.5)
                                             ---------      ---------       ---------
     Owned assets .....................       45,160.9       40,083.9        35,874.7         12.7           11.7
   Finance receivables securitized
     and managed by CIT ...............        8,309.7        9,651.7        10,482.4        (13.9)          (7.9)
                                             ---------      ---------       ---------
     Managed assets ...................      $53,470.6      $49,735.6       $46,357.1          7.5%           7.3%
                                             =========      =========       =========


      The increase in owned assets during 2004 was driven by: the combination of
a strong home lending  refinancing  market and bulk receivable  purchases in the
Specialty Finance home lending portfolio;  strategic acquisitions; and aerospace
deliveries in Capital Finance.  The decline in receivables  securitized reflects
our return to funding home lending growth  on-balance sheet and a lower level of
commercial equipment securitizations.


                                       32


      The primary  factors  that fueled the  increase in  financing  and leasing
portfolio assets during 2003 include:  two factoring  acquisitions in Commercial
Services,  growth in Business  Credit,  the combination of a strong  refinancing
market  and our  decision  to limit  securitization  activity  in the  Specialty
Finance home lending  portfolio,  a rail acquisition and deliveries of aerospace
assets in Capital Finance.

      The following table summarizes 2003 and 2004  significant  acquisitions ($
in millions).

Asset Type       Assets       Closing             Seller
----------       ------       -------             ------
Railcars .....   $  410   2nd quarter 2003     Flex Leasing
Factoring ....      450   3rd quarter 2003     GECC
Factoring ....    1,000   4th quarter 2003     HSBC
Technology ...      520   2nd quarter 2004     GATX
Vendor finance      700   3rd quarter 2004     Citicapital
Student loans     4,300   1st quarter 2005     Education Lending Group Inc.
                                               (public company tender offer)

Business Volumes

      The following table presents new business  origination  volume  (excluding
factoring) by segment ($ in millions).

                                     Years Ended      Three Months
                                     December 31,        Ended      Year Ended
                                --------------------  December 31, September 30,
                                   2004       2003        2002         2002
                                ---------  ---------  ------------ -------------
Specialty Finance -- commercial $ 9,962.2  $ 9,047.3   $2,120.7     $ 7,430.5
Specialty Finance -- consumer .   4,881.8    3,382.3      577.5       2,675.7
Commercial Finance ............   2,339.1    2,480.3      657.6       2,112.4
Equipment Finance .............   4,582.4    3,824.1    1,184.4       4,480.7
Capital Finance ...............   1,791.1    1,498.1      571.9       2,365.8
                                ---------  ---------   --------     ---------
  Total new business volume ... $23,556.6  $20,232.1   $5,112.1     $19,065.1
                                =========  =========   ========     =========

--------------------------------------------------------------------------------
(1)   During the March 2003 quarter,  certain  portfolios were  transferred from
      Equipment Finance to Specialty  Finance.  New business volumes  associated
      with the  transferred  portfolios were $208.6 million for the three months
      ended December 31, 2002 and $1,743.0  million for the year ended September
      30, 2002.  Prior  period data has not been  restated to conform to present
      period presentation.

      New  origination  volume  for  2004  included  stronger  volume  from  our
Specialty Finance vendor finance,  international and home lending units, as well
as  improved  demand  for  financing  in  industries  such as  construction  and
corporate  aircraft in Equipment  Finance.  New origination  volume for the year
ended  December 31, 2003 included  stronger  volume from our  Specialty  Finance
vendor  relationships  and home lending units,  the more  traditional  financing
transactions  in Equipment  Finance and working  capital  financings in Business
Credit.

      For the year ended  December  31, 2004,  new business  volume in Specialty
Finance -- consumer was $4.9  billion,  up 44% from 2003,  as the interest  rate
environment  remained  relatively  low,  demand  for  first  mortgage  financing
remained  strong,  and that  resulted  in  strong  production  from  our  broker
origination  channel.  Softness  in  the  home  lending  securitization  markets
afforded us the opportunity to purchase newly originated portfolios in bulk from
other home lending originators.

Non-strategic Business Lines

      The table below summarizes the previously targeted  non-strategic business
lines. In addition,  we previously ceased making new venture capital investments
beyond existing  commitments.  See "Venture Capital  Investments" below for more
information. ($ in millions)

                                        December 31,  December 31,  December 31,
Portfolio                                   2004         2003          2002
---------                               ------------  ------------  ------------
Manufactured housing ..................     $553(1)      $584         $  624
Franchise finance .....................       25          102            322
Owner-operator trucking ...............       28           91            218
Recreational marine & vehicle, other ..        2          146            175
                                            ----         ----         ------
   Total on-balance sheet financing
     and leasing assets ...............     $608(1)      $923         $1,339
                                            ====         ====         ======

--------------------------------------------------------------------------------
(1)   Includes  approximately  $300 million of manufactured  housing assets that
      were sold in January 2005.


                                       33


      During 2004 we sold virtually all of the  recreational  marine and vehicle
receivables, as well as a significant portion of the franchise portfolio. During
the fourth  quarter of 2004, we  considered  additional  opportunities  for more
rapid liquidation of certain  non-strategic  assets, and as a result, we entered
into an agreement to sell approximately $300 million of the manufactured housing
portfolio. The decision to sell manufactured housing receivables resulted in the
reclassification  of the finance receivables to assets held for sale, along with
application  of lower of cost or market value  accounting,  which  resulted in a
fourth  quarter  pretax  charge of $15.7  million,  or $0.04  diluted  EPS.  The
manufactured housing sale closed in January 2005.

Venture Capital Investments

      During the second quarter of 2004, we closed the sale of approximately $68
million of the direct investment portfolio.  Our portfolio of direct and private
fund venture capital equity  investments is summarized in the following table ($
in millions).

                                        December 31,  December 31,  December 31,
                                            2004         2003           2002
                                        ------------  ------------  ------------
Total investment balance .............     $181.1       $249.9         $335.4
Direct investments ...................       30.1       $101.1         $188.8
Number of companies ..................          8           47             57
Private equity funds
  (includes funds sold in 2005) ......      151.0       $148.8         $146.6
Number of funds ......................         52           52             52
Remaining commitments ................     $ 79.8       $124.2         $169.3

      During the fourth  quarter of 2004 we also  entered  into an  agreement to
sell the majority of the private equity funds.  The venture capital  investments
were marketed to prospective buyers and written down to an estimated sales value
which  resulted  in a fourth  quarter  pretax  charge of $14.0  million or $0.04
diluted EPS.  These actions are the  continuation  of our ongoing  initiative to
re-deploy  capital in higher  return  businesses.  We will  consider  additional
opportunities for more rapid  liquidation of non-strategic  assets to the extent
available.

Concentrations

Ten Largest Accounts

      Our ten largest  financing  and leasing  asset  accounts in the  aggregate
represented  5.3% of our total financing and leasing assets at December 31, 2004
(the largest account being less than 1.0%),  5.7% at December 31, 2003, and 5.5%
at December 31, 2002.

Operating Leases

      The following  table  summarizes the total  operating  lease  portfolio by
segment ($ in millions).



                                       December 31, 2004      December 31, 2003     December 31, 2002
                                       -----------------      -----------------     -----------------
                                                                              
Capital Finance -- aerospace .......   $4,461.0     53.8%    $4,141.1     54.4%    $3,185.4     47.5%
Capital Finance -- rail and other ..    2,310.6     27.9%     2,095.3     27.5%     1,593.6     23.8%
Specialty Finance -- commercial ....    1,078.7     13.0%       959.5     12.6%     1,257.3     18.8%
Equipment Finance ..................      440.6      5.3%       419.6      5.5%       668.3      9.9%
                                       --------    -----     --------    -----     --------    -----
   Total ...........................   $8,290.9    100.0%    $7,615.5    100.0%    $6,704.6    100.0%
                                       ========    =====     ========    =====     ========    =====


      o     The increases in the Capital  Finance  aerospace  portfolio  reflect
            deliveries of new commercial aircraft.

      o     The increase in Capital  Finance -- rail and other was due to strong
            rail volume in 2004 and a rail acquisition in 2003.

      o     The  Specialty   Finance  and  Equipment   Finance  operating  lease
            portfolios  reflect a general  trend  through 2003 toward  financing
            equipment  through  finance leases and loans,  rather than operating
            leases.  Specialty  Finance  increased  in 2004 due to a  technology
            financing business acquisition.


                                       34


      Management  strives to maximize the  profitability  of the lease equipment
portfolio by balancing equipment utilization levels with market rental rates and
lease terms.  Equipment not subject to lease agreements  totaled $118.3 million,
$265.9  million  and  $385.9  million  at  December  31,  2004,  2003 and  2002,
respectively.  The 2004 reduction was due to fewer commercial aerospace and rail
assets off lease as well as the sale of a test equipment  rental  business.  The
higher  December 31, 2002 off lease  equipment  balance  primarily  reflects the
higher level of commercial aircraft and rail assets off lease in Capital Finance
at that time. Weakness in the commercial airline industry could adversely impact
prospective rental and utilization rates.

Leveraged Leases

      The major  components  of net  investments  in leveraged  leases  include:
commercial aerospace  transactions,  including  tax-optimized  leveraged leases,
which  generally  have increased risk of loss in default for lessors in relation
to conventional lease structures due to additional  leverage and the third party
lender priority recourse to the equipment in these transactions, project finance
transactions, primarily in the power and utility sectors, and rail transactions.
The balances are as follows ($ in millions):



                                             December 31,  December 31,  December 31,
                                                 2004          2003          2002
                                               --------      --------     --------
                                                                 
Transaction Component
Commercial aerospace -- non-tax optimized ..   $  336.6      $  232.5     $  251.5
Commercial aerospace -- tax optimized ......      221.0         217.9        215.7
Project finance ............................      334.9         325.0        293.5
Rail .......................................      233.9         225.4        237.8
Other ......................................      115.4         122.1        153.7
                                               --------      --------     --------
Total leveraged lease transactions .........   $1,241.8      $1,122.9     $1,152.2
                                               ========      ========     ========
As a percentage of finance receivables .....        3.5%          3.6%         4.2%
                                               ========      ========     ========


Joint Venture Relationships

      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.  On September 8, 2004,  CIT and Dell agreed to
extend and modify the terms of the relationship.  The new agreements grants Dell
the option to  purchase  CIT's 30%  interest  in Dell  Financial  Services  L.P.
("DFS") in February  2008 and extends  CIT's right to purchase a  percentage  of
DFS's finance receivables through January 2010. The joint venture agreement with
Snap-on runs until January 2006.  The Avaya  agreement,  which relates to profit
sharing on a CIT direct origination program, extends through September 2006.

      Our  financing and leasing  assets  include  amounts  related to the Dell,
Snap-on and Avaya joint  venture  programs.  These amounts  include  receivables
originated  directly by CIT as well as receivables  purchased from joint venture
entities. The asset balances for these programs are as follows ($ in millions):

                                        December 31,  December 31,  December 31,
                                            2004         2003          2002
                                        ------------  ------------  ------------
Owned Financing and Leasing Assets
Dell ..................................   $3,389.4     $2,578.2     $2,608.1
Snap-on ...............................    1,114.7      1,093.4        975.6
Avaya Inc. ............................      620.7        828.6        965.1

Securitized Financing and
  Leasing Assets
Dell ..................................   $2,489.2     $2,488.6     $1,663.5
Snap-on ...............................       64.8         68.2         87.4
Avaya Inc. ............................      599.6        781.0        968.0

International Financing and Leasing
  Assets Included Above
Dell -- owned .........................   $1,408.7     $1,170.1     $  909.9
Dell -- securitized ...................        5.1         17.0           --


                                       35


      Returns relating to the joint venture relationships (i.e., net income as a
percentage of average  managed assets) for 2004 were somewhat in excess of CIT's
consolidated returns. A significant reduction in origination volumes from any of
these alliances could have a material impact on our asset and net income levels.
For additional  information  regarding certain of our joint venture  activities,
see Note 20 -- Certain Relationships and Related Transactions.

Home Lending Portfolio

      The Specialty  Finance home lending portfolio totaled $5.1 billion (owned)
and $6.3 billion (managed) at December 31, 2004, representing 11.2% and 11.8% of
owned and managed assets, respectively. Selected statistics for our managed home
lending portfolio are as follows:

      o     91% first mortgages.

      o     Average loan size of approximately $94.5 thousand.

      o     Top 5 state concentrations  (California,  Texas, Florida,  Ohio, and
            Pennsylvania) represented an aggregate 45% of the managed portfolio.

      o     63% fixed-rate with an average  loan-to-value  of 77% and an average
            FICO score of 633.

      o     Delinquencies  (sixty days or more) were 3.59%,  4.21%, and 4.36% at
            December 31, 2004, 2003 and 2002.

      o     Charge-offs  on a managed basis were 1.12%,  0.95%,  1.03% and 0.83%
            for the years ended  December  31, 2004 and 2003,  the three  months
            ended  December  31,  2002 and the year ended  September  30,  2002,
            respectively.

Geographic Composition

      The following table summarizes  significant state  concentrations  greater
than 5.0% and foreign  concentrations  in excess of 1.0% of our owned  financing
and leasing  portfolio  assets.  For each period  presented,  our managed  asset
geographic  composition  did not  differ  significantly  from  our  owned  asset
geographic composition.

                                    December 31,    December 31,  December 31,
                                       2004            2003          2002
                                    ------------    ------------  ------------
State
California ....................        10.3%           10.2%          9.8%
Texas .........................         7.8%            7.7%          7.0%
New York ......................         6.8%            7.4%          7.9%
All other states ..............        52.8%           54.0%         54.6%
                                       ----            ----          ----
   Total U.S. .................        77.7%           79.3%         79.3%
                                       ====            ====          ====
Country
Canada ........................         5.5%            5.1%          5.0%
England .......................         3.9%            2.8%          3.2%
France ........................         1.4%            1.1%          1.0%
Australia .....................         1.3%            1.3%          1.3%
China .........................         1.2%            0.9%          1.2%
Germany .......................         1.2%            1.0%          1.1%
Mexico ........................         1.1%            1.0%          1.0%
All other countries ...........         6.7%            7.5%          6.9%
                                       ----            ----          ----
   Total Outside U.S. .........        22.3%           20.7%         20.7%
                                       ====            ====          ====

Industry Composition

      The following  discussions  provide  information  with respect to selected
      industry compositions.


                                       36


Aerospace

      Our commercial  and regional  aerospace  portfolios  reside in the Capital
Finance segment.

      The commercial  aircraft all comply with Stage III noise regulations.  The
increase  during 2003 was due to new  aircraft  deliveries  from both Airbus and
Boeing.  The  following  table  summarizes  the  composition  of the  commercial
aerospace portfolio ($ in millions):



                                        December 31, 2004      December 31, 2003       December 31, 2002
                                      ---------------------   --------------------    -------------------
                                          Net                     Net                    Net
                                      Investment     Number   Investment    Number    Investment   Number
                                      ----------     ------   ----------    ------    ----------   ------
                                                                                   
By Region:
   Europe ..........................   $2,160.0        72       $1,991.0      65       $1,506.5      51
   North America(1) ................    1,057.7        66        1,029.7      72        1,042.2      75
   Asia Pacific ....................    1,242.4        46        1,013.6      40          853.6      35
   Latin America ...................      611.3        25          612.7      28          595.9      29
   Africa / Middle East ............       54.2         3           69.1       4           74.6       4
                                       --------       ---       --------     ---       --------     ---
Total ..............................   $5,125.6       212       $4,716.1     209       $4,072.8     194
                                       ========       ===       ========     ===       ========     ===
By Manufacturer:
   Boeing ..........................   $2,558.8       133       $2,581.7     140       $2,388.1     135
   Airbus ..........................    2,536.9        70        2,114.6      57        1,647.9      42
   Other ...........................       29.9         9           19.8      12           36.8      17
                                       --------       ---       --------     ---       --------     ---
Total ..............................   $5,125.6       212       $4,716.1     209       $4,072.8     194
                                       ========       ===       ========     ===       ========     ===
By Body Type(2):
   Narrow ..........................   $3,894.9       168       $3,415.7     159       $2,799.4     142
   Intermediate ....................      842.7        18          877.0      18          859.2      17
   Wide ............................      358.1        17          403.6      20          377.4      18
   Other ...........................       29.9         9           19.8      12           36.8      17
                                       --------       ---       --------     ---       --------     ---
Total ..............................   $5,125.6       212       $4,716.1     209       $4,072.8     194
                                       ========       ===       ========     ===       ========     ===
By Product:
   Operating lease .................   $4,324.6       167       $4,011.7     159       $3,123.0     131
   Leverage lease (other)(3) .......      336.6        12          232.5      12          251.5      13
   Leverage lease (tax optimized)(3)      221.0         9          217.9       9          215.7       9
   Capital lease ...................      137.4         6          135.6       7          267.8      13
   Loan ............................      106.0        18          118.4      22          214.8      28
                                       --------       ---       --------     ---       --------     ---
Total ..............................   $5,125.6       212       $4,716.1     209       $4,072.8     194
                                       ========       ===       ========     ===       ========     ===
Other Data:
Off-lease aircraft(4) ..............          2                        5                      9
Number of accounts .................         92                       84                     78
Weighted average age of
   fleet (years)(5) ................          6                        6                      7
Largest customer net investment ....   $  286.4                 $  268.6               $  193.0


--------------------------------------------------------------------------------
(1)   Comprised  of net  investments  in the U.S. and Canada of $877 million (60
      aircraft)  and $180.7  million (6 aircraft)  at December 31, 2004,  $822.7
      million (66  aircraft)  and $207.0  million (6  aircraft)  at December 31,
      2003,  and $832.7 million (69 aircraft) and $209.5 million (6 aircraft) at
      December 31, 2002, respectively.

(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.

(3)   In general,  the use of leverage increases the risk of a loss in the event
      of  a  default,  with  the  greatest  risk  incurred  in  tax-optimization
      leveraged leases.

(4)   At December 31, 2004, 1 of the 2 aircraft has been remarketed with a lease
      pending.

(5)   Based on dollar value weighted assets.

      The top five commercial  aerospace  exposures  totaled $1,076.0 million at
December 31, 2004. All top five are to carriers  outside of the U.S. The largest
exposure to a U.S.  carrier at  December  31,  2004 was $136.7  million.  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.


                                       37


      The regional  aircraft  portfolio  at December  31, 2004  consisted of 121
planes and a net  investment  of $302.6  million.  The  carriers  are  primarily
located in North America and Europe.  Operating  leases account for about 42% of
the portfolio,  with the remainder capital leases or loans. At December 31, 2003
the portfolio consisted of 119 planes and a net investment of $291.6 million.

      The following is a list of our exposure to current or previously-announced
aerospace  carriers that have filed for  bankruptcy  protection  and the current
status of the related aircraft at December 31, 2004:

      o     UAL Corp. -- United Airlines leases 4 CIT-owned narrow body aircraft
            (2  Boeing  757  aircraft  and 2  Boeing  737  aircraft)  with a net
            investment of $81.3 million.  Additionally, we hold Senior A tranche
            Enhanced  Equipment Trust  Certificates  ("EETCs")  issued by United
            Airlines,  which are debt  instruments  collateralized  by  aircraft
            operated by the airline,  with a fair value of $46.4 million.  As of
            December 31, 2004, in connection with United  Airlines' filing under
            Chapter 11, we have an outstanding  balance of $28.3 million (with a
            commitment  of  $75  million)  relating  to  a  debtor-in-possession
            facility.  During the third  quarter of 2004,  as  co-arranger  with
            three other  lenders,  CIT committed to $250 million of an aggregate
            $1.0 billion  facility,  which is secured by unencumbered  aircraft,
            among other  collateral.  Subsequent to year end, CIT syndicated its
            exposure down to $50 million.

      o     US  Airways  -- On  September  11,  2004,  US  Airways  Group,  Inc.
            announced that it had filed for  reorganization  under Chapter 11 of
            the U.S.  Bankruptcy Code. Under an existing  agreement,  CIT has an
            operating leases where US Airways is the lessee of one 737-300,  for
            a total net investment of $6.1 million.

      o     Air Canada -- Emerged  from  bankruptcy  during the last  quarter of
            2004. Our net investment in aircraft is approximately $46.7 million,
            relating to one CIT-owned Boeing 767 aircraft.

      o     Avianca Airlines -- Emerged from bankruptcy  during the last quarter
            of 2004.  Avianca is a lessee of one MD 80  aircraft  and one Boeing
            757, with a combined net investment of $30.4 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  defined  as  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  circumstances  indicate  that the
carrying  amount  of the asset may not be  recoverable.  Aerospace  depreciation
expense for the year ended December 31, 2004 totaled $215.8 million and included
a $14.8 million  impairment charge taken in the second quarter to reduce certain
older,  out of  production  aircraft to  estimated  fair value.  The  additional
depreciation  expense  primarily  related to aircraft  with a single lessee with
upcoming  lease  terminations  and for which market  rental rates have  recently
declined.   Therefore,   the  projected  cash  flows  no  longer  supported  the
corresponding carrying value, resulting in the additional depreciation charge.

      Commercial  airline equipment  utilization is high, with only two aircraft
off-lease  (with a book value of $12.9  million) at  December  31,  2004,  which
demonstrates our ability to place aircraft.  Despite some recent  improvement in
rental  rates,  current  placements  remain at compressed  rental  rates,  which
reflects  current  market  conditions.  Generally,  leases are being written for
terms between three and five years.  Within the regional  aircraft  portfolio at
December 31, 2004,  there were 6 aircraft  off-lease  with a total book value of
approximately $22.0 million.


                                       38


      See  table  in  "Risk  Management"  section  for  additional   information
regarding   commitments  to  purchase  additional  aircraft.   See  Note  17  --
Commitments and Contingencies for additional  information  regarding commitments
to  purchase  additional  aircraft.  See Note 5 --  Concentrations  for  further
discussion on concentrations.

Risk Management

      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).  Managing  risks is essential to conducting our commercial and
consumer businesses and to our profitability.  Accordingly,  our risk management
systems and procedures are designed to identify and analyze key business  risks,
to set appropriate  policies and limits, and to continually  monitor these risks
and limits by means of reliable  administrative and information  systems,  along
with  other  policies  and  programs.  During  2003,  we  further  elevated  the
prominence of risk management throughout the organization with the establishment
of the position of Vice  Chairman & Chief Risk Officer  within the Office of the
Chairman.

      We review and monitor  credit  exposures,  both owned and  managed,  on an
ongoing  basis  to  identify,  as  early  as  possible,  customers  that  may be
experiencing   declining   creditworthiness   or   financial   difficulty,   and
periodically  evaluate the  performance  of our finance  receivables  across the
entire organization. We monitor concentrations by borrower, industry, geographic
region and equipment  type, and we set or modify  exposure  limits as conditions
warrant,  to minimize credit  concentrations  and 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 earnings. Given the developments in
the  aerospace  sector  during  2002 and 2003,  performance,  profitability  and
residual values relating to aerospace  assets have been reviewed more frequently
with the Executive Credit Committee.  In conjunction with our capital allocation
initiatives,  we are in the  process of  enhancing  our credit  risk  management
practices,  including  portfolio  modeling,  probability  of  default  analysis,
further  development of risk-based  pricing  tools,  and reserve for credit loss
analysis.

      Our Asset  Quality  Review  Committee  is  comprised  of members of senior
management,  including the Vice Chairman & Chief Risk Officer, the Vice Chairman
& Chief  Financial  Officer,  the Chief Credit  Officer,  the Controller and the
Director  of Credit  Audit.  Periodically,  this  committee  meets  with  senior
executives of our 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 Vice Chairman and Chief Risk Officer,  oversees and manages
credit risk throughout CIT. This group includes senior credit executives in each
of the  business  units.  Our  Executive  Credit  Committee  includes  the Chief
Executive  Officer,  the Chief Risk Officer and members of the Corporate  Credit
Risk Management group. The committee approves  transactions which are outside of
established  target market definitions and risk acceptance  criteria,  corporate
exceptions as delineated  within the individual  business unit credit  authority
and transactions that 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;


                                       39


      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).

      Compliance with established corporate policies and procedures,  along with
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 Credit Risk Management -- The commercial  credit  management  process
(other  than  small  ticket  leasing   transactions)  begins  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  a  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/Lending  -- For  consumer  transactions  and
small-ticket  leasing/lending  transactions,  we  employ  proprietary  automated
credit scoring models by loan type that include customer demographics and credit
bureau characteristics.  The profiles emphasize,  among other things,  occupancy
status,  length of residence,  employment,  debt to income ratio (ratio of total
installment  debt and housing  expenses to gross monthly  income),  bank account
references,  credit bureau information,  combined loan to value ratio, length of
time in business, industry category and geographic location. 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 transaction  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,  and includes interest rate risk, foreign exchange risk,
derivative   counterparty   credit  risk  and  liquidity   risk.  We  engage  in
transactions in the normal course of business that expose us to market risks. We
conduct  what we believe  are  appropriate  management  practices  and  maintain
policies  designed to  effectively  mitigate such risks.  The  objectives of our
market risk  management  efforts are to preserve  the  economic  and  accounting
returns of our assets by matching the


                                       40


repricing  and  maturity   characteristics  of  our  assets  with  that  of  our
liabilities.  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.

      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  counterparty  credit risk
and liquidity risk. The Capital  Committee meets  periodically  and includes the
Chief  Executive  Officer,  Vice  Chairman  and Chief  Financial  Officer,  Vice
Chairman  and Chief Risk  Officer,  Vice  Chairman --  Specialty  Finance,  Vice
Chairman -- Commercial Finance,  Treasurer,  and Controller,  with business unit
executives serving on a rotating basis.

Interest Rate and Foreign Exchange Risk Management

Interest Rate Risk  Management -- We monitor our interest rate  sensitivity on a
regular  basis by  analyzing  the  impact  of  interest  rate  changes  upon the
financial  performance  of the business.  We also  consider  factors such as the
strength  of  the  economy,   customer   prepayment   behavior  and   re-pricing
characteristics of our assets and liabilities.

We evaluate and monitor various risk metrics:

      o     Margin at Risk (MAR), which measures the impact of changing interest
            rates upon interest  income over the subsequent  twelve months.  See
            Net  Finance  Margin  section  for  discussion  and  results of this
            simulation.

      o     Value at Risk (VAR), which measures the net economic value of assets
            by assessing the duration of assets and liabilities.

      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 measure the effect on earnings using maturity gap
analysis.  Our asset  portfolio  is  generally  comprised of loans and leases of
short to  intermediate  term.  As such,  the duration of our asset  portfolio is
generally less than three years.  We target to closely match the duration of our
liability  portfolio with that of our asset portfolio.  As of December 31, 2004,
our liability  portfolio  duration was slightly  longer than our asset portfolio
duration.

      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 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 the issuance
of both 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.

      As part of managing exposure to interest rate,  foreign currency,  and, in
limited  instances,  credit  risk,  CIT, as an  end-user,  enters  into  various
derivative transactions, all of which are transacted in over-the-counter markets
with  other   financial   institutions   acting  as  principal   counterparties.
Derivatives  are utilized for economic  hedging  purposes  only,  and our policy
prohibits  entering  into  derivative  financial   instruments  for  trading  or
speculative  purposes.  To ensure both appropriate use as a hedge and to achieve
hedge accounting  treatment,  whenever  possible,  substantially all derivatives
entered into are designated according to a hedge objective against a specific or
forecasted  liability or, in limited  instances,  assets.  The notional amounts,
rates,  indices,  and  maturities of our  derivatives  closely match the related
terms of the underlying hedged items.


                                       41


      CIT  utilizes  interest  rate  swaps to  exchange  variable-rate  interest
underlying forecasted issuances of commercial paper, specific variable-rate debt
instruments,  and, in limited  instances,  variable-rate  assets for  fixed-rate
amounts.  These  interest  rate  swaps are  designated  as cash flow  hedges and
changes in fair value of these  swaps,  to the extent  they are  effective  as a
hedge,  are  recorded in other  comprehensive  income.  Ineffective  amounts are
recorded in interest  expense.  Interest rate swaps are also utilized to convert
fixed-rate interest on specific debt instruments to variable-rate amounts. These
interest  rate swaps are  designated  as fair value  hedges and  changes in fair
value of these swaps are  effectively  recorded as an adjustment to the carrying
value of the hedged item, as the  offsetting  changes in fair value of the swaps
and the hedged items are recorded in earnings.

      The  following  table  summarizes  the  composition  of our interest  rate
sensitive assets and liabilities before and after swaps:

                                Before Swaps               After Swaps
                          -------------------------  -------------------------
                          Fixed rate  Floating rate  Fixed rate  Floating rate
                          ----------  -------------  ----------  -------------
   December 31, 2004
Assets .................     55%            45%          55%         45%
Liabilities ............     60%            40%          46%         54%

   December 31, 2003
Assets .................     57%            43%          57%         43%
Liabilities ............     63%            37%          49%         51%

      Total  interest  sensitive  assets were $41.7 billion and $36.7 billion at
December 31, 2004 and 2003.  Total  interest  sensitive  liabilities  were $35.9
billion and $31.5 billion at December 31, 2004 and 2003.

Foreign  Exchange  Risk  Management  -- To the  extent  local  foreign  currency
borrowings  are not raised,  CIT  utilizes  foreign  currency  exchange  forward
contracts to hedge or mitigate  currency risk underlying  foreign currency loans
to subsidiaries and the net investments in foreign  operations.  These contracts
are designated as foreign currency cash flow hedges or net investment hedges and
changes in fair value of these  contracts  are  recorded in other  comprehensive
income  along with the  translation  gains and losses on the  underlying  hedged
items. 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. CIT
also utilizes cross currency  swaps to hedge  currency risk  underlying  foreign
currency debt and selected foreign  currency assets.  These swaps are designated
as foreign  currency cash flow hedges or foreign  currency fair value hedges and
changes in fair value of these  contracts  are  recorded in other  comprehensive
income (for cash flow hedges),  or effectively as a basis adjustment  (including
the impact of the  offsetting  adjustment  to the  carrying  value of the hedged
item) to the hedged  item (for fair  value  hedges)  along with the  transaction
gains and losses on the underlying hedged items.

Other Market Risk Management -- CIT also utilizes Treasury locks (bond forwards)
to hedge  interest rate risk  associated  with planned debt  issuances and asset
sales.  These  derivatives  are  designated  as cash flow hedges of a forecasted
transaction,  with  changes in fair value of these  contracts  recorded in other
comprehensive  income.  Gains and losses recorded in other comprehensive  income
are reclassified to earnings in the same period that the forecasted  transaction
impacts  earnings.  During  2004,  CIT  entered  into  credit  default  swaps to
economically  hedge  certain CIT credit  exposures.  These swaps do not meet the
requirements for hedge  accounting  treatment and therefore are recorded at fair
value,  with both  realized  and  unrealized  gains or losses  recorded in other
revenue  in the  consolidated  statement  of  income.  See Note 9 --  Derivative
Financial  Instruments  for further  discussion,  including  notional  principal
balances of interest rate swaps,  foreign currency  exchange forward  contracts,
cross currency swaps, Treasury locks, and credit default swaps.

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.


                                       42


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,  in conjunction  with  Corporate Risk  Management,
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 current market value and
potential future exposure of outstanding derivative  instruments.  Exposures are
calculated for each  derivative  contract and are aggregated by  counterparty to
monitor credit exposure.

Liquidity Risk Management

      Liquidity  risk refers to the risk of 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,  and we maintain  and
periodically review a contingency funding plan to be implemented in the event of
any form of  market  disruption.  Additionally,  we  target  our  debt  issuance
strategy to achieve a maturity pattern designed to reduce  refinancing risk. The
primary  funding  sources are  commercial  paper (U.S.,  Canada and  Australia),
long-term debt (U.S. and  International)  and asset-backed  securities (U.S. and
Canada).

      Outstanding  commercial  paper  totaled $4.2 billion at December 31, 2004,
compared  with $4.2 billion at December  31, 2003,  and $5.0 billion at December
31,  2002.  Our targeted  U.S.  program size remains at $5.0 billion with modest
programs aggregating $500 million to be maintained in Canada and Australia.  Our
goal is to  maintain  committed  bank lines in excess of  aggregate  outstanding
commercial  paper.  We have aggregate bank  facilities of $6.3 billion with $4.2
billion in multi-year facilities.

      We maintain  registration  statements  with the  Securities  and  Exchange
Commission  ("SEC") covering debt securities that we may sell in the future.  At
December  31, 2004,  we had $12.7  billion of  registered,  but  unissued,  debt
securities  available under which we may issue debt securities and other capital
market  securities.  Term-debt  issued during 2004 totaled $12.5  billion:  $6.8
billion in variable-rate medium-term notes and $5.7 billion in fixed-rate notes.
Consistent  with our strategy of managing debt  refinancing  risk,  the weighted
average  maturity  of  term-debt  issued in 2004 was  approximately  five years.
Included with the fixed rate notes are issuances  under a retail note program in
which  we  offer   fixed-rate   senior,   unsecured  notes  utilizing   numerous
broker-dealers for placement to retail accounts. During the year, we issued $0.4
billion under this program having  maturities of between 2 and 10 years. As part
of our  strategy to further  diversify  our  funding  sources,  $3.1  billion of
foreign currency  denominated debt was issued during 2004. We plan on continuing
to utilize  diversified  sources of debt  funding to meet our  strategic  global
growth initiatives.

      To further  strengthen  our funding  capabilities,  we maintain  committed
asset backed facilities and shelf registration  statements,  which cover a range
of assets from equipment to consumer home lending receivables and trade accounts
receivable.  While  these  are  predominately  in the  U.S.,  we  also  maintain
facilities  for Canadian  domiciled  assets.  As of December  31,  2004,  we had
approximately  $4.2  billion  of  availability  in  our  committed  asset-backed
facilities and $2.4 billion of registered,  but unissued,  securities  available
under  public  shelf  registration   statements  relating  to  our  asset-backed
securitization program.

      Our  committed  asset-backed  commercial  paper  programs in the U.S.  and
Canada  provide a substantial  source of alternate  liquidity.  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.


                                       43


      We also  target and  monitor  certain  liquidity  metrics to ensure both a
balanced  liability  profile and adequate  alternate  liquidity  availability as
outlined in the following table.



                                                               December 31,  December 31,   December 31,
Liquidity Measurement                       Current Target        2004         2003             2002
---------------------                       --------------     ------------  ------------   ------------
                                                                                    
Commercial paper to total debt ..........   Maximum of 15%         11%          13%              16%
Short-term debt to total debt ...........   Maximum of 45%         31%          36%              47%
Bank lines to commercial paper ..........   Minimum of 100%       150%         149%             148%
Aggregate alternate liquidity* to
   short-term debt ......................   Minimum of 75%        108%          93%              75%


--------------------------------------------------------------------------------
*     Aggregate   alternative  liquidity  includes  available  bank  facilities,
      asset-backed conduit facilities and cash.

      Our credit  ratings are an  important  factor in meeting our  earnings and
margin targets as better ratings generally correlate to lower cost of funds (see
Net Finance Margin,  interest expense discussion).  The following credit ratings
have been in place since September 30, 2002:

                                             Short-Term    Long-Term     Outlook
                                             ----------    ---------     -------
Moody's ...............................          P-1          A2          Stable
Standard & Poor's .....................          A-1          A           Stable
Fitch .................................          F1           A           Stable

      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 certain covenants contained in 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.  In addition,  our credit  agreements also
contain a minimum net worth requirement of $4.0 billion.

      The following tables  summarize  significant  contractual  obligations and
projected cash receipts, and contractual  commitments at December 31, 2004 ($ in
millions):



                                                       Payments and Collections by Period(3)
                                       --------------------------------------------------------------------
                                         Total       2005        2006       2007         2008       2009+
                                       ---------   ---------   --------   ---------    --------   ---------
                                                                                
Commercial paper ...................   $ 4,210.9   $ 4,210.9   $   --     $    --      $   --     $    --
Variable-rate term debt ............    11,545.0     3,355.4    3,946.3     3,169.0        50.9     1,023.4
Fixed-rate term debt ...............    21,715.1     4,589.4    2,723.6     3,907.6     1,959.0     8,535.5
Preferred capital securities .......       253.8         1.7        1.7         0.4        --         250.0
Lease rental expense ...............       149.8        46.7       38.5        30.5        25.5         8.6
                                       ---------   ---------   --------   ---------    --------   ---------
   Total contractual obligations ...    37,874.6    12,204.1    6,710.1     7,107.5     2,035.4     9,817.5
                                       ---------   ---------   --------   ---------    --------   ---------
Finance receivables(1) .............    35,048.2    11,799.5    4,827.0     3,720.8     2,465.3    12,235.6
Operating lease rental income ......     3,068.2     1,099.9      742.7       445.3       301.9       478.4
Finance receivables held for sale(2)     1,640.8     1,640.8         --          --          --          --
Cash -- current balance ............     2,210.2     2,210.2         --          --          --          --
Retained interest in securitizations
   and other investments(1) ........     1,228.2       611.5      308.7       155.5        57.4        95.1
                                       ---------   ---------   --------   ---------    --------   ---------
   Total projected cash receipts ...    43,195.6    17,361.9    5,878.4     4,321.6     2,824.6    12,809.1
                                       ---------   ---------   --------   ---------    --------   ---------
Net projected cash inflow (outflow)    $ 5,321.0   $ 5,157.8   $ (831.7)  $(2,785.9)   $  789.2   $ 2,991.6
                                       =========   =========   ========   =========    ========   =========


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

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

(3)   Projected  proceeds from the sale of operating lease  equipment,  interest
      revenue from finance  receivables,  debt interest  expense and other items
      are excluded.  Obligations  relating to  postretirement  programs are also
      excluded.


                                       44




                                                   Commitment Expiration by Period
                                   -------------------------------------------------------------
                                     Total       2005       2006       2007     2008      2009+
                                   ---------   --------   --------   --------  ------   --------
                                                                      
Credit extensions ..............   $ 8,428.3   $1,467.5   $1,047.4   $  933.2  $863.2   $4,117.0
Aircraft purchases .............     2,168.0      906.0    1,002.0      260.0      --         --
Letters of credit ..............     1,206.6    1,199.3        7.2        0.1      --         --
Sale-leaseback payments ........       495.4       31.0       31.0       31.0    31.0      371.4
Other equipment purchases
   (primarily rail) ............       397.0      397.0         --         --      --         --
Venture capital commitments(1) .        79.8        0.5         --        3.1     5.1       71.1
Guarantees .....................       133.1      120.9         --         --    10.5        1.7
Acceptances ....................        16.4       16.4         --         --      --         --
                                   ---------   --------   --------   --------  ------   --------
   Total contractual commitments   $12,924.6   $4,138.6   $2,087.6   $1,227.4  $909.8   $4,561.2
                                   =========   ========   ========   ========  ======   ========


--------------------------------------------------------------------------------
(1)   Including amounts relating to venture capital investments sold in 2005.

Internal Controls

      The  Internal  Controls   Committee  is  responsible  for  monitoring  and
improving  internal  controls and overseeing the internal  controls  attestation
mandated by Section 404 of the Sarbanes-Oxley Act of 2002 ("SARBOX"),  for which
the  implementation  year is  2004.  The  committee,  which  is  chaired  by the
Controller,  includes the CFO,  the Director of Internal  Audit and other senior
executives in finance, legal, risk management and information technology.

      See Item 9A. Controls and Procedures for  Management's  Report on Internal
Control over Financial Reporting.

Off-balance Sheet Arrangements

Securitization Program

      We fund asset  originations  on our  balance  sheet by  accessing  various
sectors of the capital  markets,  including the term debt and  commercial  paper
markets.  In an effort to broaden  funding  sources  and  provide an  additional
source of liquidity, we use an array of securitization programs,  including both
asset-backed commercial paper and term structures, to access both the public and
private asset-backed  securitization markets. Current products in these programs
include  receivables  and leases  secured by equipment as well as consumer loans
secured by residential real estate. The following table summarizes data relating
to our securitization balance and activity ($ in millions).



                                                                      At or for
                                                    At or for         the Three     At or for the
                                                the Years Ended      Months Ended    Year Ended
                                                   December 31,      December 31,   September 30,
                                                2004        2003         2002           2002
                                              --------    --------   ------------   -------------
                                                                         
Securitized Assets:
   Specialty Finance -- commercial ........   $4,165.5    $4,557.9    $ 4,332.6      $ 4,734.7
   Specialty Finance -- home lending ......    1,228.7     1,867.6      2,213.6        2,115.9
   Equipment Finance ......................    2,915.5     3,226.2      3,936.2        4,384.1
                                              --------    --------    ---------      ---------
     Total securitized assets .............   $8,309.7    $9,651.7    $10,482.4      $11,234.7
                                              ========    ========    =========      =========
Securitized assets as a % of managed assets       15.5%       19.4%        22.6%          23.6%
                                              ========    ========    =========      =========
Volume Securitized:
   Specialty Finance -- commercial ........   $3,153.8    $3,416.2    $   590.6      $ 2,602.0
   Specialty Finance -- home lending ......       --         489.2        288.1        2,738.6
   Equipment Finance ......................    1,280.7     1,414.8        310.6        2,327.9
                                              --------    --------    ---------      ---------
     Total volume securitized .............   $4,434.5    $5,320.2    $ 1,189.3      $ 7,668.5
                                              ========    ========    =========      =========



                                       45


      During  2004,   economics  relating  to  commercial  finance   receivables
securitization activity declined compared to 2003, resulting in some decrease in
volume.  Also, we continued to grow the home lending portfolio on-balance sheet.
Though we were well  below  this level in 2004,  at 4.8%,  management  targets a
maximum of 15% of pre-tax income from securitization gains.

      Under our typical asset-backed securitization, we sell a "pool" of secured
loans or leases to a special-purpose entity ("SPE"), typically a trust. SPEs 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." The special-purpose  entity, in turn, issues
certificates  and/or notes that are  collateralized  by the pool and entitle the
holders thereof to participate in certain pool cash flows. Accordingly,  CIT has
no legal  obligations  to repay the  securities in the event of a default by the
SPE. CIT retains the servicing rights of the securitized contracts, for which we
earn a servicing fee. We also participate in certain "residual" cash flows (cash
flows  after  payment of  principal  and  interest  to  certificate  and/or note
holders, servicing fees and other credit-related disbursements).  At the date of
securitization,  we estimate the  "residual"  cash flows to be received over the
life of the  securitization,  record the present  value of these cash flows as a
retained interest in the  securitization  (retained  interests can include bonds
issued by the  special-purpose  entity,  cash reserve accounts on deposit in the
special-purpose  entity or interest only receivables) and typically  recognize a
gain. Assets  securitized are shown in our managed assets and our capitalization
ratios on a managed basis.

      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.

      In estimating residual cash flows and the value of the retained interests,
we make a variety  of  financial  assumptions,  including  pool  credit  losses,
prepayment  speeds and discount rates.  These  assumptions are supported by both
our historical  experience  and  anticipated  trends  relative to the particular
products securitized.  Subsequent to recording the retained interests, we review
them quarterly for impairment  based on estimated fair value.  These reviews are
performed  on a  disaggregated  basis.  Fair  values of retained  interests  are
estimated   utilizing  current  pool   demographics,   actual   note/certificate
outstandings,  current and  anticipated  credit  losses,  prepayment  speeds and
discount rates.

      Our  retained  interests  had a carrying  value at  December  31,  2004 of
$1,155.6  million,  including  interests  in  commercial  securitized  assets of
$1,062.0  million and consumer  securitized  assets of $93.6 million.  The total
retained  interest as of December  31, 2004 is  comprised  of $522.8  million in
over-collateralization,  $309.4  million of  interest  only  strips,  and $323.4
million of cash reserve accounts.  Retained  interests are subject to credit and
prepayment risk. As of December 31, 2004,  approximately  50% of our outstanding
securitization pool balances are in conduit structures. These assets are subject
to the same credit granting and monitoring  processes which are described in the
"Credit Risk Management" section.

Joint Venture Activities

      We utilize joint  ventures  organized  through  distinct legal entities 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
disclosure in Item 8. Financial  Statements and  Supplementary  Data, Note 20 --
Certain Relationships and Related Transactions.


                                       46


Capitalization

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



                                                        December 31,   December 31,   December 31,
                                                           2004            2003          2002
                                                        ------------   ------------   ------------
                                                                              
Commercial paper .....................................   $ 4,210.9      $ 4,173.9      $ 4,974.6
Bank credit facilities ...............................        --             --          2,118.0
Term debt ............................................    33,260.1       29,239.2       24,588.7
Preferred capital securities .........................       253.8          255.5          257.2
Stockholders' equity(1) ..............................     6,073.7        5,427.8        4,968.5
Goodwill and other intangible assets .................      (596.5)        (487.7)        (400.9)
                                                         ---------      ---------      ---------
   Total tangible stockholders' equity and preferred
     capital securities ..............................     5,731.0        5,195.6        4,824.8
                                                         ---------      ---------      ---------
Total tangible capitalization ........................   $43,202.0      $38,608.7      $36,506.1
                                                         =========      =========      =========
Tangible stockholders' equity(1) and Preferred Capital
   Securities to managed assets ......................       10.72%         10.45%         10.41%


--------------------------------------------------------------------------------
(1)   Stockholders'  equity  excludes  the impact of the  accounting  change for
      derivative financial  instruments  described in Note 9 to the Consolidated
      Financial  Statements and certain  unrealized  gains or losses on retained
      interests and investments, as these amounts are not necessarily indicative
      of amounts that will be realized. See "Non-GAAP Financial Measurements."

      The European vendor finance  acquisition  increased  goodwill and acquired
intangibles by approximately $80 million.

      The preferred capital  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.  Consistent  with rating agency
measurements,  preferred  capital  securities are included in tangible equity in
our leverage  ratios.  See  "Non-GAAP  Financial  Measurements"  for  additional
information.

      See "Liquidity  Risk  Management"  for  discussion of risks  impacting our
liquidity  and  capitalization.  Also  see  Note  1 --  Summary  of  Significant
Accounting  Policies for information  regarding the accounting and reporting for
these securities.

Critical Accounting Estimates

      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,  the reported amounts of income and
expense during the reporting period and the disclosure of contingent  assets and
liabilities at the date of the financial  statements.  The following  accounting
estimates,  which are based on relevant information available at the end of each
period,  include  inherent  risks and  uncertainties  related to  judgments  and
assumptions made by management.  We consider the following  accounting estimates
to be critical in applying  our  accounting  policies  due to the  existence  of
uncertainty  at the time the  estimate  is made,  the  likelihood  of changes in
estimates  from period to period and the potential  impact that these  estimates
can have on the financial statements.

      Investments  --  Investments  for which CIT does not have the  ability  to
exercise significant influence and for which there is not a readily determinable
market value, are accounted for at fair value. The majority of these investments
are in our venture capital portfolio.  Accordingly,  management uses judgment in
determining  fair value.  Pretax  write-downs of $14.0 million and $63.0 million
were taken in 2004 and in 2003 on our venture capital investment portfolio based
on management's  estimates of fair value,  reflecting our decision to accelerate
the liquidation of these assets via sale and additional fair value data obtained
in the  marketing of the  portfolio to  prospective  buyers.  As of December 31,
2004, venture capital  investments  totaled $181.0 million. A 10% fluctuation in
value of venture capital  investments  equates to $0.05 in diluted  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).  Charge-offs for
the year ended December 31, 2004 were $301.2 million.


                                       47


      Impaired Loans -- Loan impairment is measured as any shortfall between the
estimated value and the recorded  investment for those loans defined as impaired
loans in the  application of SFAS 114. The estimated  value is determined  using
the fair value of the collateral or 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  judgment 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.  At December 31, 2004,  the reserve for credit  losses  includes a $60.4
million  impairment  valuation  component.  A 10%  fluctuation in this valuation
equates to $0.02 in diluted earnings per share.

      Reserve for Credit  Losses -- The 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  values,  among other things.  Therefore,
changes  in  economic  conditions  or  credit  metrics,  including  past due and
non-performing   accounts,  or  other  events  affecting  specific  obligors  or
industries  may  necessitate  additions or  reductions to the reserve for credit
losses.

      The reserve for credit losses is 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 determined based on three key components:
(1) specific reserves for collateral  dependent loans which are impaired,  based
upon the value of underlying collateral or projected cash flows (2) reserves for
estimated  losses  inherent in the portfolio based upon historical and projected
credit  trends and (3)  reserves  for economic  environment  and other  factors.
Historical  loss rates are based on a three-year  average,  which is  consistent
with our portfolio life and provides what we believe to be appropriate weighting
to current loss rates.  The process  involves  the use of  estimates  and a high
degree of management  judgment.  As of December 31, 2004, the reserve for credit
losses was $617.2 million or 1.76% of finance  receivables.  A  hypothetical  5%
change  to  the   three-year   historic  loss  rates  utilized  in  our  reserve
determination  at December 31, 2004 equates to the  following  variances:  $22.7
million,  or 6 basis  points  (0.06%) in the  percentage  of reserves to finance
receivables; and $0.06 in diluted 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. These assumptions reflect both the historical experience and
anticipated trends relative to the products  securitized.  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.  See  Note 6 --
Retained  Interests in  Securitizations  and Other  Investments  for  additional
information regarding  securitization retained interests and related sensitivity
analysis.

      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 than a finance lease.  Management  performs  periodic
reviews  of  the  estimated  residual  values,  with  non-temporary   impairment
recognized  in the current  period as an increase  to  depreciation  expense for
operating lease residual  impairment,  or as an adjustment to yield for residual
value adjustments on finance leases. Data regarding equipment values,  including
appraisals,  and our historical  residual  realization  experience are among the
factors  considered in evaluating  estimated residual values. As of December 31,
2004, our direct  financing lease residual  balance was $2,389.7 million and our
operating lease equipment balance was $8,290.9 million.  A hypothetical 10 basis
points  (0.1%)  fluctuation  in the total of these  amounts  equates to $0.03 in
diluted earnings per share.


                                       48


      Goodwill and Intangible Assets -- CIT adopted SFAS No. 142,  "Goodwill and
Other Intangible  Assets,"  effective October 1, 2001. 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 is 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 "Note 23 -- Goodwill and  Intangible  Assets" for a
discussion of our impairment analysis.

      Intangible  assets consist  primarily of customer  relationships  acquired
with 2004 and 2003  acquisitions,  with  amortization  lives up to 20 years, and
computer software and related transaction  processes,  which are being amortized
over a  5-year  life.  An  evaluation  of the  remaining  useful  lives  and the
amortization  methodology of the intangible assets is performed  periodically to
determine if any change is warranted.  Goodwill and Other Intangibles Assets was
$596.5 million at December 31, 2004. A hypothetical 10% fluctuation in the value
equates to $0.28 in diluted earnings per share.

      Income Tax Reserves and Deferred  Income Taxes --We have open tax years in
the U.S. and Canada and other jurisdictions that are currently under examination
by the applicable  taxing  authorities,  and certain later tax years that may in
the future be subject to examination.  We periodically  evaluate the adequacy of
our related tax reserves, taking into account our open tax return positions, tax
assessments  received,  tax law changes and third  party  indemnifications.  The
process of  evaluating  tax reserves  involves  the use of estimates  and a high
degree of  management  judgment.  The final  determination  of tax audits  could
affect our tax reserves.

      Deferred  tax assets and  liabilities  are  recognized  for the future tax
consequences  of  transactions  that have  been  reflected  in the  Consolidated
Financial Statements. Our ability to realize deferred tax assets is dependent on
prospectively  generating taxable income by corresponding tax jurisdiction,  and
in some cases on the timing and amount of specific types of future transactions.
Management's  judgment,  regarding  uncertainties  and the use of estimates  and
projections,  is required in assessing our ability to realize net operating loss
("NOL's") and other tax benefit carry-forwards,  as these assets begin to expire
at  various  dates  beginning  in 2005,  and they may be  subject  to annual use
limitations  under the Internal Revenue Code and other limitations under certain
state laws.  Management  utilizes  historical  and projected  data,  budgets and
business plans in making these  estimates and  assessments.  Deferred tax assets
relating to NOL's were $852  million at December 31,  2004.  A  hypothetical  1%
fluctuation  in the value of deferred  tax assets  relating to NOL's  equates to
$0.04 in diluted earnings per share.

      See Item 9A.  Controls and Procedures for  discussion  regarding  internal
controls  related to income tax accounting and reporting.  See Item 8. Financial
Statements  and  Supplementary  Data,  Note 1 for a discussion  on the impact of
recent accounting pronouncements.

Non-GAAP Financial Measurements

      The U.S.  Securities and Exchange Commission ("SEC") adopted Regulation G,
which applies to any public  disclosure or release of material  information that
includes a non-GAAP financial measure. The accompanying  Management's Discussion
and Analysis of Financial  Condition and Results of Operations and  Quantitative
and Qualitative  Disclosure about Market Risk contain certain non-GAAP financial
measures. The SEC defines a non-GAAP financial measure as a numerical measure of
a company's historical or future financial  performance,  financial position, or
cash flows that excludes  amounts,  or is subject to  adjustments  that have the
effect of excluding amounts,  that are included in the most directly  comparable
measure  calculated  and  presented  in  accordance  with GAAP in the  financial
statements  or  includes  amounts,  or is subject to  adjustments  that have the
effect of including amounts, that are excluded from the most directly comparable
measure so calculated and presented.

      Non-GAAP  financial measures disclosed in this report are meant to provide
additional  information and insight relative to historical operating results and
financial  position of the  business and in certain  cases to provide  financial
information  that is presented  to rating  agencies and other users of financial
information.  These  measures are not in accordance  with, or a substitute  for,
GAAP and may be different from or inconsistent with non-GAAP  financial measures
used by other companies.


                                       49


      Selected non-GAAP disclosures are presented and reconciled in the table
below ($ in millions):



                                                     December 31,   December 31,   December 31,
                                                        2004           2003            2002
                                                     ------------   ------------   -----------
                                                                           
Managed assets(1)
Finance receivables ...............................   $35,048.2      $31,300.2      $27,621.3
Operating lease equipment, net ....................     8,290.9        7,615.5        6,704.6
Finance receivables held for sale .................     1,640.8          918.3        1,213.4
Equity and venture capital investments (included in
   other assets) ..................................       181.0          249.9          335.4
                                                      ---------      ---------      ---------
   Total financing and leasing portfolio assets ...    45,160.9       40,083.9       35,874.7
Securitized assets ................................     8,309.7        9,651.7       10,482.4
                                                      ---------      ---------      ---------
   Managed assets .................................   $53,470.6      $49,735.6      $46,357.1
                                                      =========      =========      =========
Earning assets(2)
Total financing and leasing portfolio assets ......   $45,160.9      $40,083.9      $35,874.7
Credit balances of factoring clients ..............    (3,847.3)      (3,894.6)      (2,270.0)
                                                      ---------      ---------      ---------
Earning assets ....................................   $41,313.6      $36,189.3      $33,604.7
                                                      =========      =========      =========
Tangible equity(3)
Total equity ......................................   $ 6,055.1      $ 5,394.2      $ 4,870.7
Other comprehensive loss relating to derivative
   financial instruments ..........................        27.1           41.3          118.3
Unrealized gain on securitization investments .....        (8.5)          (7.7)         (20.5)
Goodwill and intangible assets ....................      (596.5)        (487.7)        (400.9)
                                                      ---------      ---------      ---------
Tangible common equity ............................     5,477.2        4,940.1        4,567.6
Preferred capital securities ......................       253.8          255.5          257.2
                                                      ---------      ---------      ---------
   Tangible equity ................................   $ 5,731.0      $ 5,195.6      $ 4,824.8
                                                      =========      =========      =========
Debt, net of overnight deposits(4)
Total Debt ........................................   $37,724.8      $33,668.6      $31,681.3
Overnight deposits ................................    (1,507.3)      (1,529.4)      (1,578.7)
Preferred capital securities ......................      (253.8)        (255.5)            --
                                                      ---------      ---------      ---------
   Debt, net of overnight deposits ................   $35,963.7      $31,883.7      $30,102.6
                                                      =========      =========      =========


--------------------------------------------------------------------------------
(1)   Managed  assets  are  utilized  in  certain  credit  and  expense  ratios.
      Securitized  assets are  included  in managed  assets  because CIT retains
      certain  credit risk and the  servicing  related to assets that are funded
      through securitizations.

(2)   Earning  assets are  utilized  in certain  revenue  and  earnings  ratios.
      Earning assets are net of credit balances of factoring  clients.  This net
      amount,  which  corresponds  to amount  funded,  is a basis  for  revenues
      earned, such as finance income and factoring commissions.

(3)   Tangible equity is utilized in leverage ratios, and is consistent with our
      presentation to rating agencies. Other comprehensive losses and unrealized
      gains  on  securitization  investments  (both  included  in  the  separate
      component of equity) are excluded from the  calculation,  as these amounts
      are not necessarily indicative of amounts which will be realized.

(4)   Debt, net of overnight  deposits,  is utilized in certain leverage ratios.
      Overnight deposits are excluded from these calculations,  as these amounts
      are  retained  by the  Company  to  repay  debt.  Overnight  deposits  are
      reflected in both debt and cash and cash equivalents.


                                       50


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 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 funding, borrowing costs and net finance margin,

      o     our capital, leverage and credit ratings,

      o     our operational and legal risks,

      o     our ability to remediate the material  weakness in internal controls
            related to income taxes,

      o     our growth rates,

      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.


                                       51


Item 8. Financial Statements and Supplementary Data.

             Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
CIT Group Inc.:

      We have  completed an  integrated  audit of CIT Group Inc.'s  December 31,
2004  consolidated  financial  statements  and  of  its  internal  control  over
financial reporting as of December 31, 2004 and audits of its December 31, 2003,
December 31, 2002 and September 30, 2002  consolidated  financial  statements in
accordance with the standards of the Public Company  Accounting  Oversight Board
(United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements

      In our opinion, the consolidated  financial statements listed in the index
appearing under Item 15(a)(1)  present  fairly,  in all material  respects,  the
financial  position of CIT Group Inc. and its  subsidiaries at December 31, 2004
and 2003, and the results of their operations and their cash flows for the years
ended  December 31, 2004 and 2003,  the three months ended December 31, 2002 and
the  fiscal  year  ended  September  30,  2002  in  conformity  with  accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted our audits of these  statements in accordance with the
standards of the Public  Company  Accounting  Oversight  Board (United  States).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit of financial  statements includes  examining,  on a test
basis,  evidence  supporting  the  amounts  and  disclosures  in  the  financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

      Also, we have audited  management's  assessment,  included in Management's
Report on Internal  Control Over Financial  Reporting  appearing  under Item 9A,
that CIT Group Inc. did not maintain  effective  internal control over financial
reporting  as of  December  31,  2004,  because of the effect of the Company not
maintaining  effective  controls  over the  reconciliations  of the  differences
between the tax basis and book basis of each component of the Company's  balance
sheet with the  deferred  tax asset and  liability  accounts,  based on criteria
established in Internal  Control - Integrated  Framework issued by the Committee
of Sponsoring  Organizations of the Treadway  Commission  (COSO).  The Company's
management  is  responsible  for  maintaining  effective  internal  control over
financial  reporting  and for its  assessment of the  effectiveness  of internal
control over financial  reporting.  Our responsibility is to express opinions on
management's  assessment  and on the  effectiveness  of the  Company's  internal
control over financial reporting based on our audit.

      We conducted  our audit of internal  control over  financial  reporting in
accordance with the standards of the Public Company  Accounting  Oversight Board
(United States).  Those standards  require that we plan and perform the audit to
obtain  reasonable  assurance  about  whether  effective  internal  control over
financial  reporting  was  maintained  in all  material  respects.  An  audit of
internal control over financial reporting includes obtaining an understanding of
internal control over financial reporting,  evaluating management's  assessment,
testing  and  evaluating  the design and  operating  effectiveness  of  internal
control,  and performing such other  procedures as we consider  necessary in the
circumstances.  We believe that our audit  provides a  reasonable  basis for our
opinions.

      A  company's  internal  control  over  financial  reporting  is a  process
designed to provide reasonable  assurance regarding the reliability of financial
reporting and the preparation of financial  statements for external  purposes in
accordance with generally accepted accounting  principles.  A company's internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the  transactions  and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made


                                       52


only in  accordance  with  authorizations  of  management  and  directors of the
company;  and (iii) provide reasonable  assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

      Because of its  inherent  limitations,  internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

      A material  weakness is a control  deficiency,  or  combination of control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. The following material weakness has been identified and included in
management's  assessment.  As of December 31, 2004, the Company did not maintain
effective controls over the  reconciliations of the differences  between the tax
basis and book basis of each  component of the Company's  balance sheet with the
deferred tax asset and liability accounts. The control deficiency did not result
in  any  adjustments  to the  2004  annual  or  interim  consolidated  financial
statements.  However,  this  control  deficiency  results  in more than a remote
likelihood that a material  misstatement to the deferred tax asset and liability
accounts  and income tax  provision  will not be  prevented  or  detected in the
annual or interim financial statements.  Accordingly,  management has determined
that this condition constitutes a material weakness.  This material weakness was
considered in determining the nature,  timing, and extent of audit tests applied
in our audit of the December 31, 2004 consolidated financial statements, and our
opinion  regarding  the  effectiveness  of the Company's  internal  control over
financial reporting does not affect our opinion on those consolidated  financial
statements.

      In our  opinion,  management's  assessment  that CIT  Group  Inc.  did not
maintain effective internal control over financial  reporting as of December 31,
2004, is fairly stated, in all material respects,  based on criteria established
in Internal  Control - Integrated  Framework  issued by the COSO.  Also,  in our
opinion,  because of the effect of the material weakness  described above on the
achievement  of the objectives of the control  criteria,  CIT Group Inc. has not
maintained  effective  internal control over financial  reporting as of December
31,  2004,  based on  criteria  established  in  Internal  Control -  Integrated
Framework issued by the COSO.

PricewaterhouseCoopers LLP
New York, New York
March 4, 2005


                                       53




                        CIT GROUP INC. AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                      ($ in millions -- except share data)
                                                                   December 31,  December 31,
                                                                      2004         2003
                                                                   ------------ -------------
                                     ASSETS
                                                                           
Financing and leasing assets:
  Finance receivables ...........................................   $35,048.2    $31,300.2
Reserve for credit losses .......................................      (617.2)      (643.7)
                                                                    ---------    ---------
   Net finance receivables ......................................    34,431.0     30,656.5
   Operating lease equipment, net ...............................     8,290.9      7,615.5
   Finance receivables held for sale ............................     1,640.8        918.3
Cash and cash equivalents .......................................     2,210.2      1,973.7
Retained interests in securitizations
  and other investments .........................................     1,228.2      1,380.8
Goodwill and intangible assets, net .............................       596.5        487.7
Other assets ....................................................     2,713.7      3,310.3
                                                                    ---------    ---------
Total Assets ....................................................   $51,111.3    $46,342.8
                                                                    =========    =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
   Commercial paper .............................................   $ 4,210.9    $ 4,173.9
   Variable-rate senior notes ...................................    11,545.0      9,408.4
   Fixed-rate senior notes ......................................    21,715.1     19,830.8
   Preferred capital securities .................................       253.8        255.5
                                                                    ---------    ---------
Total debt ......................................................    37,724.8     33,668.6
Credit balances of factoring clients ............................     3,847.3      3,894.6
Accrued liabilities and payables ................................     3,443.7      3,346.4
                                                                    ---------    ---------
Total Liabilities ...............................................    45,015.8     40,909.6
                                                                    ---------    ---------
Commitments and Contingencies (Note 17)
Minority interest ...............................................        40.4         39.0
Stockholders' Equity:
   Preferred stock: $0.01 par value, 100,000,000
     authorized, none issued ....................................          --           --
   Common stock: $0.01 par value,
     600,000,000 authorized,
     Issued: 212,112,203 and 211,848,997 ........................         2.1          2.1
   Outstanding: 210,440,170 and 211,805,468
     Paid-in capital, net of deferred compensation
     of $39.3 and $30.6 .........................................    10,674.3     10,677.0
   Accumulated deficit ..........................................    (4,499.1)    (5,141.8)
   Accumulated other comprehensive loss .........................       (58.4)      (141.6)
Less: Treasury stock, 1,672,033 and 43,529 shares, at cost ......       (63.8)        (1.5)
                                                                    ---------    ---------
Total Stockholders' Equity ......................................     6,055.1      5,394.2
                                                                    ---------    ---------
Total Liabilities and Stockholders' Equity ......................   $51,111.3    $46,342.8
                                                                    =========    =========


                 See Notes to Consolidated Financial Statements.


                                       54


                         CIT GROUP INC. AND SUBSIDIARIES

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



                                                    Years Ended          Three Months
                                                    December 31,             Ended        Years Ended
                                             -------------------------    December 31,   September 30,
                                                2004           2003           2002           2002
                                             ----------     ----------     ----------     ----------
                                                                              
Finance income ...........................   $  3,785.7     $  3,729.5     $    971.7     $  4,342.8
Interest expense .........................      1,260.1        1,348.7          349.5        1,464.7
                                             ----------     ----------     ----------     ----------
Net finance income .......................      2,525.6        2,380.8          622.2        2,878.1
Depreciation on operating lease equipment         956.0        1,053.0          277.3        1,241.0
                                             ----------     ----------     ----------     ----------
Net finance margin .......................      1,569.6        1,327.8          344.9        1,637.1
Provision for credit losses ..............        214.2          387.3          133.4          788.3
                                             ----------     ----------     ----------     ----------
Net finance margin after provision
 for credit losses .......................      1,355.4          940.5          211.5          848.8
Other revenue ............................        890.6          947.6          263.5          972.6
Net loss on venture capital investments ..         (3.5)         (88.3)          (6.4)         (40.3)
                                             ----------     ----------     ----------     ----------
Operating margin .........................      2,242.5        1,799.8          468.6        1,781.1
                                             ----------     ----------     ----------     ----------
Salaries and general operating expenses ..      1,046.4          912.9          232.6          921.0
Goodwill impairment ......................           --             --             --        6,511.7
Interest expense -- TCH ..................           --             --             --          662.6
                                             ----------     ----------     ----------     ----------
Operating expenses .......................      1,046.4          912.9          232.6        8,095.3
                                             ----------     ----------     ----------     ----------
Gain on redemption of debt ...............         41.8           50.4             --             --
                                             ----------     ----------     ----------     ----------
Income (loss) before provision for
 income taxes ............................      1,237.9          937.3          236.0       (6,314.2)
Provision for income taxes ...............       (483.2)        (365.0)         (92.0)        (374.0)
Minority interest, after tax .............         (1.1)            --             --             --
Dividends on preferred capital securities,
after tax ................................           --           (5.4)          (2.7)         (10.5)
                                             ----------     ----------     ----------     ----------
Net income (loss) ........................   $    753.6     $    566.9     $    141.3     $ (6,698.7)
                                             ==========     ==========     ==========     ==========
Per share data
Basic earnings (loss) per share ..........   $     3.57     $     2.68     $     0.67     $   (31.66)
Diluted earnings (loss) per share ........   $     3.50     $     2.66     $     0.67     $   (31.66)
Number of shares -- basic (thousands) ....      211,017        211,681        211,573        211,573
Number of shares -- diluted (thousands) ..      215,054        213,143        211,826        211,695
Dividends per common share ...............   $     0.52     $     0.48     $     0.12     $       --


                See Notes to Consolidated Financial Statements.


                                       55


                        CIT GROUP INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                ($ in millions)



                                                                                                        Accumulated
                                                                                         Accumulated       Other          Total
                                            Common    Paid-in    Contributed   Treasury   Earnings/    Comprehensive   Stockholders'
                                             Stock    Capital      Capital       Stock    (Deficit)    Income/(Loss)      Equity
                                            ------   ---------   -----------   --------  -----------   -------------   -------------
                                                                                                    
September 30, 2001 .......................   $ --    $      --   $  5,842.5    $    --    $   181.9       $ (76.8)       $ 5,947.6
Net loss .................................                                                 (6,698.7)                      (6,698.7)
Foreign currency translation adjustments .                                                                  (62.4)           (62.4)
Change in fair values of derivatives
  qualifying as cash flow hedges .........                                                                  (57.1)           (57.1)
Unrealized gain on equity and
  securitization investments, net ........                                                                   21.0             21.0
Minimum pension liability adjustment .....                                                                  (21.0)           (21.0)
                                                                                                                         ---------
Total comprehensive loss .................                                                                                (6,818.2)
                                                                                                                         ---------
Issuance of common stock in connection
  with the initial public offering .......    2.0     10,420.4    (10,422.4)                                                    --
Common stock issued -- overallotment .....    0.1        249.2                                                               249.3
Capital contribution from Tyco for TCH ...                          4,579.9                   794.0                        5,373.9
Restricted common stock grants ...........                 5.2                                                                 5.2
                                             ----    ---------   ----------    -------    ---------       -------        ---------
September 30, 2002 .......................    2.1     10,674.8           --         --     (5,722.8)       (196.3)         4,757.8
Net income ...............................                                                    141.3                          141.3
Foreign currency translation adjustments .                                                                    0.2              0.2
Change in fair values of derivatives
  qualifying as cash flow hedges .........                                                                    2.2              2.2
Unrealized gain on equity and
  securitization investments, net ........                                                                   (6.8)            (6.8)
                                                                                                                         ---------
Total comprehensive income ...............                                                                                   136.9
                                                                                                                         ---------
Cash dividends ...........................                                                    (25.4)                         (25.4)
Restricted common stock grants ...........                 1.4                                                                 1.4
                                             ----    ---------   ----------    -------    ---------       -------        ---------
December 31, 2002 ........................    2.1     10,676.2           --         --     (5,606.9)       (200.7)         4,870.7
Net income ...............................                                                    566.9                          566.9
Foreign currency translation adjustments .                                                                  (30.2)           (30.2)
Change in fair values of derivatives
  qualifying as cash flow hedges .........                                                                   77.0             77.0
Unrealized gain on equity and
  securitization investments, net ........                                                                   (7.4)            (7.4)
Minimum pension liability adjustment .....                                                                   19.7             19.7
                                                                                                                         ---------
Total comprehensive income ...............                                                                                   626.0
                                                                                                                         ---------
Cash dividends ...........................                                                   (101.8)                        (101.8)
Restricted common stock grants ...........                 8.8                                                                8.8
Treasury stock purchased, at cost ........                                       (28.9)                                      (28.9)
Exercise of stock option awards ..........                (7.3)                   27.4                                        20.1
Employee stock purchase plan
  participation ..........................                (0.7)                                                               (0.7)
                                             ----    ---------   ----------    -------    ---------       -------        ---------
December 31, 2003 ........................    2.1     10,677.0           --       (1.5)    (5,141.8)       (141.6)         5,394.2
Net income ...............................                                                    753.6                          753.6
Foreign currency translation adjustments .                                                                   68.6             68.6
Change in fair values of derivatives
  qualifying as cash flow hedges .........                                                                   14.2             14.2
Unrealized gain on equity and
  securitization investments, net ........                                                                    2.3              2.3
Minimum pension liability adjustment .....                                                                   (1.9)            (1.9)
                                                                                                                         ---------
Total comprehensive income ...............                                                                                   836.8
                                                                                                                         ---------
Cash dividends ...........................                                                   (110.9)                        (110.9)
Restricted common stock grants ...........                23.5                                                                23.5
Treasury stock purchased, at cost ........                                      (174.8)                                     (174.8)
Exercise of stock option awards ..........               (25.6)                  111.6                                        86.0
Employee stock purchase plan
  participation ..........................                (0.6)                    0.9                                         0.3
                                             ----    ---------   ----------    -------    ---------       -------        ---------
December 31, 2004 ........................   $2.1    $10,674.3   $       --    $ (63.8)   $(4,499.1)      $ (58.4)       $ 6,055.1
                                             ====    =========   ==========    =======    =========       =======        =========


                See Notes to Consolidated Financial Statements.


                                       56


                         CIT GROUP INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 ($ in millions)



                                                                  Years Ended           Three Months
                                                                  December 31,             Ended         Year Ended
                                                           ------------------------     December 31,    September 30,
                                                              2004          2003            2002            2002
                                                           ----------    ----------     ------------    -------------
                                                                                             
Cash Flows From Operations
Net income (loss) ......................................   $    753.6    $    566.9      $    141.3      $ (6,698.7)
Adjustments to reconcile net income (loss)
   to net cash flows from operations:
Depreciation and amortization ..........................        998.8       1,086.6           287.5         1,286.5
Provision for deferred federal income taxes ............        321.0         265.1            71.9           276.9
Provision for credit losses ............................        214.2         387.3           133.4           788.3
Gains on equipment, receivable and investment sales, net       (208.8)       (164.7)          (51.8)         (203.1)
Gain on debt redemption ................................        (41.8)        (50.4)           --              --
(Increase) decrease in finance receivables
   held for sale .......................................       (394.5)        295.1          (193.9)         (261.6)
(Increase) decrease in other assets ....................       (282.2)       (174.2)           26.7          (626.7)
Increase in accrued liabilities and payables ...........        328.9         279.2            55.4            57.0
Goodwill impairment ....................................         --            --              --           6,511.7
Other ..................................................        (71.5)         (8.7)          (52.0)            4.0
                                                           ----------    ----------      ----------      ----------
Net cash flows provided by operations ..................      1,617.7       2,482.2           418.5         1,134.3
                                                           ----------    ----------      ----------      ----------
Cash Flows From Investing Activities
Loans extended .........................................    (57,062.0)    (53,157.8)      (12,873.8)      (48,300.6)
Collections on loans ...................................     48,944.1      45,123.9        12,089.7        42,584.2
Proceeds from asset and receivable sales ...............      8,491.4       7,419.0         1,279.3        11,254.0
Purchase of finance receivable portfolios ..............     (3,180.0)     (1,097.5)         (254.7)         (372.7)
Purchases of assets to be leased .......................     (1,489.2)     (2,096.3)         (449.1)       (1,877.2)
Acquisitions, net of cash acquired .....................       (726.8)         --              --              --
Goodwill and intangibles assets acquired ...............       (122.1)        (92.6)           --              --
Net decrease (increase) in short-term
   factoring receivables ...............................         48.3        (396.1)          391.7          (651.9)
Other ..................................................         41.6          14.8            (4.3)          (52.5)
                                                           ----------    ----------      ----------      ----------
Net cash flows (used for) provided by
  investing activities .................................     (5,054.7)     (4,282.6)          178.8         2,583.3
                                                           ----------    ----------      ----------      ----------
Cash Flows From Financing Activities
Proceeds from the issuance of variable and
   fixed-rate notes ....................................     13,005.6      13,034.6         2,463.2        13,093.4
Repayments of variable and fixed-rate notes ............     (8,824.1)    (10,265.6)       (3,558.3)      (12,148.8)
Cash dividends paid ....................................       (110.9)       (101.8)          (25.4)           --
Net repayments of non-recourse leveraged
   lease debt ..........................................       (367.2)       (125.4)          (35.0)         (187.7)
Net increase (decrease) in commercial paper ............         37.0        (800.7)          320.4        (4,186.2)
Capital contribution from former parent ................         --            --              --             923.5
Proceeds from issuance of common stock .................         --            --              --             254.6
Other ..................................................        (66.9)         (3.6)           --              --
                                                           ----------    ----------      ----------      ----------
Net cash flows provided by (used for)
financing activities ...................................      3,673.5       1,737.5          (835.1)       (2,251.2)
                                                           ----------    ----------      ----------      ----------
Net increase (decrease) in cash and cash equivalents ...        236.5         (62.9)         (237.8)        1,466.4
Cash and cash equivalents, beginning of period .........      1,973.7       2,036.6         2,274.4           808.0
                                                           ----------    ----------      ----------      ----------
Cash and cash equivalents, end of period ...............   $  2,210.2    $  1,973.7      $  2,036.6      $  2,274.4
                                                           ==========    ==========      ==========      ==========

Supplementary Cash Flow Disclosure
Interest paid ..........................................   $  1,241.5    $  1,517.6      $    418.5      $  1,713.9
Federal, foreign, state and local income taxes paid,
   (received) net ......................................   $    115.0    $     80.6      $     44.2      $    (43.9)


                 See Notes to Consolidated Financial Statements.


                                       57


                         CIT GROUP INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Business and 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 growing
economic  sectors,  offering  vendor,  equipment,  commercial,  factoring,  home
mortgage, small business, educational lending and structured financing products.
CIT  operates  primarily  in North  America,  with  locations  in Europe,  Latin
America, Australia and the Asia-Pacific region.

Basis of Presentation

      The Consolidated  Financial  Statements include the results of CIT and its
subsidiaries  and  have  been  prepared  in  U.S.  dollars  in  accordance  with
accounting  principles  generally  accepted in the United States.  Certain prior
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 and the recognition
of related  goodwill.  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.

      Following the  acquisition  by Tyco,  our fiscal year end was changed 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.  Accordingly,  the three months ended December 31,
2002 constitutes a transitional fiscal period.

      In accordance  with the  provisions of FASB  Interpretation  No. 46R ("FIN
46"),  "Consolidation of Variable Interest Entities," CIT consolidates  variable
interest  entities for which  management  has concluded  that CIT is the primary
beneficiary.  Entities that do not meet the  definition  of a variable  interest
entity are subject to the  provisions  of  Accounting  Research  Bulletin No. 51
("ARB  51"),  "Consolidated  Financial  Statements"  and are  consolidated  when
management  has  determined  that it has  the  controlling  financial  interest.
Entities which do not meet the consolidation criteria in either FIN 46 or ARB 51
but which are significantly influenced by the Company,  generally those entities
that are twenty to fifty  percent  owned by CIT, are included in other assets at
cost for  securities not readily  marketable and presented at the  corresponding
share  of  equity  plus  loans  and  advances.  Investments  in  entities  which
management does not have  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. Inter-company transactions have been eliminated.

Financing and Leasing Assets

      CIT  provides  funding  through  a  variety  of  financing   arrangements,
including  term  loans,  lease  financing  and  operating  leases.  The  amounts
outstanding  on loans and direct  financing  leases are  referred  to as finance
receivables and, when combined with finance  receivables held for sale, net book
value of operating lease equipment, and certain investments, represent financing
and leasing assets.

      At the time of  designation  for sale,  securitization  or  syndication by
management,  assets are classified as finance  receivables  held for sale. These
assets are carried at the lower of cost or fair value.

Income Recognition

      Finance  income  includes  interest on loans,  the  accretion of income on
direct financing leases, and rents on operating leases.  Related origination and
other nonrefundable fees and direct origination costs are deferred and amortized
as  an  adjustment  of  finance  income  over  the   contractual   life  of  the
transactions. Income on finance


                                       58


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

receivables  other than  leveraged  leases is  recognized  on an  accrual  basis
commencing in the month of origination.  Leveraged lease income is recognized on
a basis calculated to achieve a constant after-tax rate of return for periods in
which CIT has a positive investment in the transaction,  net of related deferred
tax  liabilities.  Rental income on operating leases is recognized on an accrual
basis.

      The  accrual  of  finance  income on  commercial  finance  receivables  is
generally  suspended and an account is placed on non-accrual status when payment
of principal or interest is  contractually  delinquent  for 90 days or more,  or
earlier when, in the opinion of management, full collection of all principal and
interest  due is  doubtful.  Given the nature of  revolving  credit  facilities,
including  those  combined  with term loan  facilities  (advances  and  interest
accruals  increase  revolving loan balances and payments  reduce  revolving loan
balances),  the placement of revolving credit  facilities on non-accrual  status
includes  the  review  of  other  qualitative  and  quantitative  credit-related
factors, and generally does not result in the reversal of significant amounts of
accrued interest.  To the extent the estimated fair value of collateral does not
satisfy  both the  principal  and  accrued  interest  outstanding,  accrued  but
uncollected  interest at the date an account is placed on non-accrual  status is
reversed and charged against income.  Subsequent interest received is applied to
the outstanding  principal  balance until such time as the account is collected,
charged-off  or returned  to accrual  status.  The accrual of finance  income on
consumer loans is suspended,  and all previously  accrued but uncollected income
is  reversed,  when  payment  of  principal  and/or  interest  is  contractually
delinquent for 90 days or more.

      Other  revenue  includes the  following:  (1) factoring  commissions,  (2)
commitment,  facility,  letters of credit and  syndication  fees,  (3) servicing
fees, (4) gains and losses from sales of leasing  equipment and sales of finance
receivables,  (5)  gains  from and fees  related  to  securitizations  including
accretion  related to retained  interests (net of impairment)  and (6) equity in
earnings of joint ventures and unconsolidated subsidiaries.

Lease Financing

      Direct financing leases are recorded at the aggregate future minimum lease
payments plus estimated residual values less unearned finance income.  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.  Equipment  acquired  in
satisfaction of loans and subsequently  placed on operating lease is recorded at
the lower of  carrying  value or  estimated  fair  value  when  acquired.  Lease
receivables  include leveraged leases,  for which a major portion of the funding
is provided by third party  lenders on a nonrecourse  basis,  with CIT providing
the balance and acquiring title to the property.  Leveraged  leases are recorded
at the aggregate value of future minimum lease payments plus estimated  residual
value, less nonrecourse third party debt and unearned finance income. Management
performs  periodic  reviews of the estimated  residual  values with  impairment,
other than temporary, recognized in the current period.

Reserve for Credit Losses on Finance Receivables

      The reserve for credit  losses is intended to provide for losses  inherent
in the portfolio and is periodically  reviewed for adequacy considering economic
conditions,   collateral  values  and  credit  quality   indicators,   including
historical and expected  charge-off  experience and levels of and trends in past
due  loans,  non-performing  assets and  impaired  loans.  Changes  in  economic
conditions  or other  events  affecting  specific  obligors  or  industries  may
necessitate additions or deductions to the reserve for credit losses.

      The reserve for credit losses is determined based on three key components:
(1) specific  reserves for collateral  dependent loans that are impaired,  based
upon the value of underlying  collateral or projected  cash flows,  (2) reserves
for  estimated  losses  inherent  in the  portfolio  based  upon  the  value  of
underlying  collateral  or  projected  cash flows and (3)  reserves for economic
environment and other factors. In management's  judgment, the reserve for credit
losses is adequate to provide for credit losses inherent in the portfolio.

Charge-off of Finance Receivables

      Finance receivables are reviewed periodically to determine the probability
of loss.  Charge-offs are taken after considering such factors as the borrower's
financial condition and the value of underlying collateral and


                                       59


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

guarantees  (including recourse to dealers and manufacturers).  Such charge-offs
are deducted from the carrying value of the related finance receivables.  To the
extent that an unrecovered  balance remains due, a final  charge-off is taken at
the time  collection  efforts  are  deemed no  longer  useful.  Charge-offs  are
recorded on consumer and certain  small ticket  commercial  finance  receivables
beginning at 180 days of  contractual  delinquency  based upon  historical  loss
severity.  Collections  on  accounts  previously  charged  off are  recorded  as
recoveries.

Impaired Loans

      Impaired loans include any loans for $500 thousand or greater,  other than
homogeneous  pools of loans,  that are  placed  on  non-accrual  status  and are
subject to periodic  individual  review by CIT's Asset Quality Review  Committee
("AQR").  The AQR, which is comprised of members of senior  management,  reviews
overall portfolio  performance,  as well as individual  accounts meeting certain
credit risk grading  parameters.  Excluded from  impaired  loans are: 1) certain
individual commercial  non-accrual loans for which the collateral value supports
the outstanding  balance and the continuation of earning status, 2) home lending
and other homogeneous pools of loans, which are subject to automatic  charge-off
procedures,  and 3) short-term factoring customer receivables,  generally having
terms of no more than 30 days.  Loan  impairment  occurs when,  based on current
information and events, it is probable that a creditor will be unable to collect
all amounts due according to the contractual  terms of the loan agreement.  Loan
impairment  is measured 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.

Long-Lived Assets

      A review for impairment of long-lived  assets,  such as certain  operating
lease  equipment,  is performed at least annually and whenever events or changes
in circumstances  indicate that the carrying amount of long-lived assets may not
be  recoverable.  Impairment  of assets is  determined by comparing the carrying
amount  of an  asset  to  future  undiscounted  net cash  flows  expected  to be
generated  by the asset.  If such  assets are  considered  to be  impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets  exceeds the fair value of the assets.  Fair value is based
upon  discounted  cash flow  analysis and  available  market data.  Assets to be
disposed of are reported at the lower of the carrying  amount or fair value less
costs to sell.

Goodwill and Other Identified Intangibles

      SFAS  No.  141   "Business   Combinations"   requires  that  all  business
combinations  initiated  after June 30, 2001 be accounted for using the purchase
method. The purchase method of accounting  requires that the cost of an acquired
entity be allocated  to the assets  acquired and  liabilities  assumed  based on
their estimated fair values at the date of acquisition.  The difference  between
the fair values and the purchase price is recorded to goodwill.  Also under SFAS
141,  identified  intangible  assets acquired in a business  combination must be
separately  valued and  recognized  on the  balance  sheet if they meet  certain
requirements.

      Goodwill  represents  the excess of the purchase price over the fair value
of identifiable assets acquired, less the fair value of liabilities assumed from
business combinations.  CIT adopted SFAS No. 142, "Goodwill and Other Intangible
Assets"  effective  October 1, 2001.  The Company  determined  that there was no
impact of adopting this  standard  under the  transition  provisions of SFAS No.
142. Since adoption,  goodwill is no longer  amortized,  but instead is 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 transactions and market place
data.

      Intangible assets consist primarily of customer  relationships acquired in
2004 and 2003  acquisitions,  which have  amortizable  lives up to 20 years, and
computer software and related transaction  processes,  which are being amortized
over a  5-year  life.  An  evaluation  of the  remaining  useful  lives  and the
amortization  methodology of the intangible assets is performed  periodically to
determine if any change is warranted.


                                       60


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Other Assets

      Assets  received  in  satisfaction  of loans are  carried  at the lower of
carrying value or estimated fair value less selling costs,  with  write-downs at
the time of receipt recognized by recording a charge-off. Subsequent write-downs
of such assets,  which may be required due to a decline in estimated fair market
value after receipt, are reflected in general operating expenses.

      Realized and  unrealized  gains (losses) on marketable  equity  securities
included  in CIT's  venture  capital  portfolios  are  recognized  currently  in
operations.  Unrealized gains and losses,  representing  the difference  between
carrying value and estimated  current fair market value,  for all other debt and
equity  securities are recorded in other  accumulated  comprehensive  income,  a
separate component of equity.

      Investments  in joint  ventures are accounted for using the equity method,
whereby  the  investment  balance  is  carried  at  cost  and  adjusted  for the
proportionate share of undistributed earnings or losses. Unrealized intercompany
profits and losses are eliminated  until realized,  as if the joint venture were
consolidated.

      Investments  in debt and equity  securities  of  non-public  companies are
carried at fair value.  Gains and losses are recognized  upon sale or write-down
of these investments as a component of operating margin.

Securitization Sales

      Pools of assets are originated and sold to special purpose entities which,
in turn,  issue debt  securities  backed by the asset  pools or sell  individual
interests  in the assets to  investors.  CIT  retains the  servicing  rights and
participates in certain cash flows from the pools. The present value of expected
net cash flows (after  payment of principal and interest to  certificate  and/or
note holders and credit-related  disbursements)  that exceeds the estimated cost
of servicing is recorded at the time of sale as a "retained  interest." Retained
interests in securitized assets are classified as available-for-sale  securities
under SFAS No. 115. CIT, in its  estimation of those net cash flows and retained
interests,  employs a variety  of  financial  assumptions,  including  loan pool
credit losses,  prepayment  speeds and discount  rates.  These  assumptions  are
supported by both CIT's  historical  experience,  market trends and  anticipated
performance  relative to the particular  assets  securitized.  Subsequent to the
recording  of  retained  interests,  estimated  cash flows  underlying  retained
interests are  periodically  updated based upon current  information  and events
that  management  believes a market  participant  would use in  determining  the
current  fair  value  of  the  retained  interest.  An  'other-than   temporary'
impairment  is recorded  and  included in net income to write down the  retained
interest  to  estimated  fair value if the  analysis  indicates  that an adverse
change in estimated cash flows has occurred.  Unrealized  gains are not credited
to current earnings,  but are reflected in stockholders' equity as part of other
comprehensive income.

      Servicing  assets  or  liabilities  are  established  when  the  fees  for
servicing  securitized assets are more or less than adequate compensation to CIT
for servicing the assets.  Servicing  assets or liabilities  are recognized over
the  servicing  period  and  are  periodically  evaluated  for  impairment.  CIT
securitization  transactions  generally  do not  result in  servicing  assets or
liabilities,  as typically the  contractual  fees are adequate  compensation  in
relation to the associated servicing costs.

Derivative Financial Instruments

      CIT uses interest rate swaps,  bond  forwards,  currency swaps and foreign
exchange forward contracts as part of a worldwide market risk management program
to hedge against the effects of future interest rate and currency  fluctuations.
CIT  does not  enter  into  derivative  financial  instruments  for  trading  or
speculative purposes.

      On January 1, 2001, CIT adopted SFAS No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities."  Derivative  instruments are recognized in
the balance  sheet at their fair values in other assets and accrued  liabilities
and payables, and changes in fair values are recognized immediately in earnings,
unless the derivatives  qualify as hedges of future cash flows.  For derivatives
qualifying as hedges of future cash flows,  the effective  portion of changes in
fair value is recorded  temporarily in accumulated other comprehensive income as
a separate  component  of equity,  and  contractual  cash flows,  along with the
related impact of the hedged items,  continue to be recognized in earnings.  Any
ineffective  portion  of a  hedge  is  reported  in  current  earnings.  Amounts
accumulated in other  comprehensive  income are  reclassified to earnings in the
same period that the hedged transaction impacts earnings.


                                       61


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The net interest  differential,  including  premiums paid or received,  if
any, on interest rate swaps,  is recognized on an accrual basis as an adjustment
to finance income or as interest expense to correspond with the hedged position.
In the event of early  termination  of a derivative  instrument  classified as a
cash flow hedge,  the gain or loss remains in  accumulated  other  comprehensive
income until the hedged transaction is recognized in earnings.

      CIT utilizes foreign exchange forward contracts or cross-currency swaps to
convert U.S. dollar borrowings into local currency when local borrowings are not
cost  effective  or  available.  CIT  also  utilizes  foreign  exchange  forward
contracts to hedge its net investments in foreign operations.  These instruments
are  designated  as hedges  and  resulting  gains and losses  are  reflected  in
accumulated other comprehensive income as a separate component of equity.

      CIT is exposed to credit risk to the extent that the counterparty fails to
perform under the terms of a derivative instrument. This risk is measured as the
market value of derivative  transactions with a positive fair value,  reduced by
the  effects  of master  netting  agreements.  We  manage  this  credit  risk by
requiring that all  derivative  transactions  be conducted  with  counterparties
rated  investment  grade by  nationally  recognized  rating  agencies,  with the
majority of the  counterparties  rated "AA" or higher,  and by setting limits on
the exposure with any individual counterparty.  Accordingly, counterparty credit
risk is not considered significant.

Foreign Currency Translation

      CIT has  operations  in Canada,  Europe and other  countries  outside  the
United States. The functional currency for these foreign operations is generally
the local currency.  The value of the assets and liabilities of these operations
is translated into U.S. dollars at the rate of exchange in effect at the balance
sheet date.  Revenue and expense items are  translated  at the average  exchange
rates  effective  during the year. The resulting  foreign  currency  translation
gains  and  losses,  as well as  offsetting  gains  and  losses on hedges of net
investments  in  foreign   operations,   are  reflected  in  accumulated   other
comprehensive loss.

      Transaction  gains and losses  resulting  from  exchange  rate  changes on
transactions  denominated in currencies  other than the functional  currency are
included in net income.

Income Taxes

      Deferred tax assets and liabilities are recognized for the expected future
tax  consequences  of  events  that  have  been  reflected  in the  Consolidated
Financial  Statements.  Deferred tax liabilities and assets are determined based
on the  differences  between  the book  values  and the tax basis of  particular
assets  and  liabilities,  using tax rates in effect  for the years in which the
differences are expected to reverse. A valuation allowance is provided to offset
any net deferred tax assets if, based upon the  available  evidence,  it is more
likely  than  not  that  some or all of the  deferred  tax  assets  will  not be
realized. U.S. income taxes are generally not provided on undistributed earnings
of  foreign   operations  as  such  earnings  are  permanently   invested.   The
determination of the tax effect of such unremitted  earnings is not practicable.
Income tax reserves reflect open tax return positions, tax assessments received,
tax law changes and third party  indemnifications,  and are  included in current
taxes payable, which is reflected in accrued liabilities and payables.

Accounting for Costs Associated with Exit or Disposal Activities

      On January 1, 2003,  the Company  adopted  SFAS No. 146,  "Accounting  for
Costs  Associated  with Exit or Disposal  Activities."  SFAS 146 requires that a
liability for costs associated with exit or disposal activities, other than in a
business  combination,  be recognized  when the liability is incurred.  Previous
generally accepted  accounting  principles  provided for the recognition of such
costs at the date of management's  commitment to an exit plan. In addition, SFAS
146  requires  that the  liability be measured at fair value and be adjusted for
changes in estimated cash flows.  This statement did not have a material  impact
on the Company's consolidated financial statements.

Other Comprehensive Income/Loss

      Other   comprehensive    income/loss    includes   unrealized   gains   on
securitization  retained  interests  and  other  investments,  foreign  currency
translation  adjustments  pertaining  to both  the  net  investment  in  foreign
operations and the related derivatives designated as hedges of such investments,
the changes in fair values of  derivative  instruments  designated  as hedges of
future cash flows and minimum pension liability adjustments.


                                       62


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Consolidated Statements of Cash Flows

      Cash and cash  equivalents  includes cash and  interest-bearing  deposits,
which  generally  represent  overnight  money market  investments of excess cash
maintained  for liquidity  purposes.  Cash inflows and outflows from  commercial
paper borrowings and most factoring  receivables are presented on a net basis in
the  Statements of Cash Flows,  as their original term is generally less than 90
days.

Use of Estimates

      The  preparation  of financial  statements in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make  extensive use of estimates and  assumptions  that affect the
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.  Actual results could differ
from those estimates.

Stock-Based Compensation

      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):




                                                            Years Ended          Three Months
                                                           December 31,              Ended       Year Ended
                                                       ---------------------     December 31,   September 30,
                                                        2004           2003          2002           2002
                                                        ----           ----      -------------  -------------
                                                                                     
Net income (loss) as reported.......................   $753.6         $566.9        $141.3       $(6,698.7)
Stock-based compensation expense -- fair value
   method, after tax................................    (20.6)         (23.0)         (5.7)           (5.7)
                                                       ------         ------        ------       ---------
Pro forma net income (loss).........................   $733.0         $543.9        $135.6       $(6,704.4)
                                                       ======         ======        ======       =========
Basic earnings (loss) per share as reported.........   $ 3.57         $ 2.68        $ 0.67       $  (31.66)
Basic earnings (loss) per share pro forma...........   $ 3.47         $ 2.57        $ 0.64       $  (31.69)
Diluted earnings (loss) per share as reported.......   $ 3.50         $ 2.66        $ 0.67       $  (31.66)
Diluted earnings (loss) per share pro forma.........   $ 3.41         $ 2.55        $ 0.64       $  (31.69)


      Compensation expense related to restricted stock awards is recognized over
the respective  vesting  periods and totalled (net of tax) $14.3  million,  $5.5
million, $0.6 million and $3.2 million for the years ended December 31, 2004 and
2003, the three months ended December 31, 2002 and the year ended  September 30,
2002, respectively.

Accounting Pronouncements

      In December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based
Payment" ("FAS 123R"). FAS 123R requires the recognition of compensation expense
for all stock-based  compensation plans as of the beginning of the first interim
or annual  reporting  period  that  begins  after  June 15,  2005.  The  current
accounting for employee stock options is most impacted by this new standard,  as
costs  associated  with  restricted  stock awards are already  recognized in net
income  and  amounts  associated  with  employee  stock  purchase  plans are not
significant.  Similar  to  the  proforma  amounts  disclosed  historically,  the
compensation  cost  relating to options will be based upon the  grant-date  fair
value of the award and will be  recognized  over the  vesting  period.  FAS 123R
allows for both prospective and retrospective  adoption. The financial statement
impact of adopting FAS 123R is not expected to differ materially from historical
proforma disclosures.  Management is evaluating the transition alternatives, all
of which require  compensation expense to be included in net income in 2005, and
valuation methodologies allowed under the new standard.


                                       63


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      In  December  2004,  the FASB issued  FASB Staff  Position  No. FAS 109-2,
"Accounting  and  Disclosure  Guidance  for the  Foreign  Earnings  Repatriation
Provision  within the American Jobs Creation Act of 2004" ("FSP  109-2").  Given
the lack of clarification  of certain  provisions and the timing of the Act, FSP
109-2  allows for time  beyond the year ended  December  31, 2004 (the period of
enactment)  to  evaluate  the  effect  of the Act on plans for  reinvestment  or
repatriation of foreign  earnings for purposes of applying income tax accounting
under SFAS No. 109.

      In March 2004, the SEC issued Staff Accounting Bulletin 105,  "Application
of Accounting Principles to Loan Commitments" ("SAB 105"). SAB 105 requires that
certain mortgage loan commitments  issued after March 31, 2004 are accounted for
as derivatives until the loan is made or they expire  unexercised.  The adoption
of SAB 105 did not have a material financial statement impact.

      In  January  2004,  the FASB  issued  FASB Staff  Position  No. FAS 106-1,
"Accounting  and Disclosure  Requirements  Related to the Medicare  Prescription
Drug  Improvement and  Modernization  Act of 2003" ("FSP 106-1").  For the third
quarter  of  2004,  the  Company  accounted  for  the  effects  of the  Medicare
Prescription Drug and Modernization Act of 2003 by recognizing the impact of the
Medicare  prescription drug subsidy prospectively from July 1, 2004. The subsidy
reduced the July 1, 2004 Accumulated Post Retirement Benefit Obligation and 2004
annual related expense by $3.5 million and $0.3 million, respectively.

      In December 2003, the American  Institute of Certified Public  Accountants
(AICPA) issued Statement of Position No. 03-3,  "Accounting for Certain Loans or
Debt  Securities  Acquired  in a  Transfer"  ("SOP  03-3").  SOP 03-3,  which is
effective for fiscal years beginning after December 15, 2004,  requires acquired
loans to be carried at fair value and prohibits the establishment of acquisition
credit loss reserves related to business combinations or portfolio  acquisitions
that have  evidence of credit  deterioration  since  origination.  At our recent
level and type of acquisitions, the adoption of SOP 03-3 is not expected to have
a material financial statement impact.

      In December 2003, the SEC issued Staff Accounting  Bulletin 104,  "Revenue
Recognition"  ("SAB  104"),  which  revises  or  rescinds  portions  of  related
interpretive  guidance  in order to be  consistent  with  current  authoritative
accounting and auditing guidance and SEC rules and regulations.  The adoption of
SAB 104 as of January 1, 2004 did not have a material financial statement impact
on the Company.

      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   requires  CIT  to  display  the  Preferred  Capital   Securities
(previously  described as "Company obligated  mandatorily  redeemable  preferred
securities of subsidiary trust holding solely debentures of the Company") within
the debt  section on the face of the  Consolidated  Balance  Sheets and show the
related expense with interest expense on a pre-tax basis. There was 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.  On November 7, 2003,  certain
measurement  and  classification  provisions  of SFAS 150,  relating  to certain
mandatorily redeemable  non-controlling  interests,  were deferred indefinitely.
The adoption of these  delayed  provisions,  which relate  primarily to minority
interests  associated  with  finite-lived  entities,  is not  expected to have a
material financial statement impact on the Company.


Note 2 -- Finance Receivables

      The following table presents the breakdown of finance receivables by loans
and lease receivables, as well as finance receivables previously securitized and
still managed by CIT ($ in millions).

                                                  December 31,      December 31,
                                                      2004             2003
                                                  ------------      ------------
Loans..........................................     $27,566.2        $25,137.1
Leases.........................................       7,482.0          6,163.1
                                                    ---------        ---------
   Finance receivables.........................     $35,048.2        $31,300.2
                                                    =========        =========
Finance receivables securitized and
   managed by CIT..............................     $ 8,309.7        $ 9,651.7
                                                    =========        =========


                                       64


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Finance receivables include the following ($ in billions)

                                                 December 31,     December 31,
                                                     2004             2003
                                                 ------------     ------------
Unearned income...............................     $ (3.2)          $ (3.3)
Equipment residual values.....................     $  2.4           $  2.4
Leveraged leases..............................     $  1.2           $  1.1

      Leveraged  leases exclude the portion  funded by third party  non-recourse
debt payable of $2.9 billion at December 31, 2004,  and $3.3 billion at December
31, 2003.

      The  following  table sets  forth the  contractual  maturities  of finance
receivables due in the respective fiscal period. ($ in millions).

                                      December 31, 2004      December 31, 2003
                                      -----------------      -----------------
Due Within Year:
   1..............................   $11,799.5     33.7%     $11,698.9    37.4%
   2..............................     4,827.0     13.8%       4,503.7    14.4%
   3..............................     3,720.8     10.6%       3,441.2    11.0%
   4..............................     2,465.3      7.0%       2,197.9     7.0%
   5..............................     2,066.8      5.9%       2,095.9     6.7%
Thereafter........................    10,168.8     29.0%       7,362.6    23.5%
                                     ---------               ---------
Total.............................   $35,048.2    100.0%     $31,300.2   100.0%
                                     =========               =========

      Non-performing  assets  reflect both finance  receivables  on  non-accrual
status  (primarily  loans that are ninety  days or more  delinquent)  and assets
received in satisfaction of loans (repossessed assets). The following table sets
forth certain information regarding total non-performing assets ($ in millions).

                                                   December 31,     December 31,
                                                       2004             2003
                                                   ------------     ------------
Non-accrual finance receivables..................    $ 458.4          $ 566.5
Assets received in satisfaction of loans.........       81.2            110.0
                                                     -------          -------
Total non-performing assets......................    $ 539.6          $ 676.5
                                                     -------          -------
Percentage of finance receivables................       1.54%            2.16%
                                                     =======          =======

      The following table contains information on loans evaluated for impairment
and the reserve for credit losses  associated  with loans  considered  impaired.
After being  classified as impaired,  there is no finance  income  recognized on
these loans because the definition of an impaired loan is based upon non-accrual
status ($ in millions).




                                                           At or for the         At or for the
                                                            Years Ended          Three Months   At or for the
                                                           December 31,              Ended       Year Ended
                                                       ---------------------      December 31,   September 30,
                                                        2004           2003          2002           2002
                                                        ----           ----      -------------- --------------
                                                                                      
Finance receivables evaluated for impairment........   $400.9         $516.5        $959.9        $1,001.2
Finance receivables considered impaired.............   $235.4         $279.8        $522.3         $ 449.8
Associated reserve for credit losses(1).............   $ 60.4         $120.7        $156.9         $ 197.4
Finance receivables evaluated for impairment
   with no reserve for credit losses required.......   $165.5         $236.7        $437.6         $ 551.4
Average monthly investment in finance
   receivables considered for impairment(2).........   $445.4         $690.5        $980.6         $ 818.9

--------------------------------------------------------------------------------
(1)   Impaired  finance  receivables are those loans whose estimated fair value,
      based upon underlying collateral or estimated cash flows, is less than the
      current recorded value. The allowance is the difference  between these two
      amounts and is included in the reserve for credit losses.

(2)   Includes  telecommunications  related  accounts  totaling  $224.3 million,
      $316.0 million, $327.3 million and $185.5 million at December 31, 2004 and
      2003, December 31, 2002 and September 30, 2002, respectively.


                                       65


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 3 -- Reserve for Credit Losses

      The following  table presents  changes in the reserve for credit losses ($
in millions).




                                                           At or for the        At or for the
                                                            Years Ended          Three Months   At or for the
                                                           December 31,              Ended       Year Ended
                                                      ----------------------     December 31,   September 30,
                                                        2004           2003          2002           2002
                                                        ----           ----     --------------  -------------
                                                                                       
Balance, beginning of period........................  $ 643.7        $ 760.8       $ 777.8         $ 492.9
                                                      -------        -------       -------         -------
Provision for credit losses.........................    270.0          408.8         133.4           453.3
Provision for credit losses -- specific
   reserving actions(1).............................    (55.8)         (21.5)            --          335.0
Reserves relating to acquisitions,
   dispositions and other(2)........................     60.5           17.5           4.1           (11.1)
                                                      -------        -------       -------         -------
   Additions to the reserve for credit losses.......    274.7          404.8         137.5           777.2
                                                      -------        -------       -------         -------
Charged-off -- finance receivables...................  (340.3)        (424.9)       (157.7)         (508.2)
Charged-off -- telecommunications....................   (40.1)         (47.0)        (15.5)          (30.9)
Charged-off -- Argentine.............................      --         (101.0)           --             --
Recoveries on finance receivables
   previously charged-off...........................     79.2           51.0          18.7            46.8
                                                      -------        -------       -------         -------
   Net credit losses................................   (301.2)        (521.9)       (154.5)         (492.3)
                                                      -------        -------       -------         -------
Balance, end of period..............................  $ 617.2        $ 643.7       $ 760.8         $ 777.8
                                                      =======        =======       =======         =======

Reserve for credit losses as a percentage
   of finance receivables...........................     1.76%          2.06%         2.75%           2.73%


--------------------------------------------------------------------------------
(1)   The   2002   amount   consists   of   reserving    actions   relating   to
      telecommunications   ($200.0  million)  and  Argentine  exposures  ($135.0
      million).  The 2003 amount  reflects a reduction of the Argentine  reserve
      after substantial work-out efforts were completed.  This amount was offset
      by an increase to the provision for credit losses -- finance  receivables.
      The   2004   amount   includes   a   $43.3   million   reduction   to  the
      telecommunications  specific reserve and a $12.5 million  reduction of the
      Argentine  reserve  following  the sale of the  remaining  assets  in this
      portfolio.  The  Argentine  reduction  was  offset by an  increase  to the
      provision for credit losses -- finance receivables.

(2)   The higher 2004 balance reflects increased portfolio purchase and business
      acquisition activity.

Note 4 -- Operating Lease Equipment

      The  following  table  provides  an analysis of the net book value (net of
accumulated  depreciation  of $1.9 billion and $1.5 billion) of operating  lease
assets, by equipment type, at December 31, 2004 and 2003 ($ in millions).

                                                   December 31,     December 31,
                                                       2004             2003
                                                   ------------     ------------
Commercial aircraft (including regional
  aircraft)......................................     $4,461.0         $4,141.1
Railcars and locomotives.........................      2,212.8          1,987.3
Information technology...........................        430.4            229.3
Office equipment.................................        274.2            235.0
Communications...................................        237.8            320.6
Business aircraft................................        189.1            242.5
Other............................................        485.6            459.7
                                                      --------         --------
   Total.........................................     $8,290.9         $7,615.5
                                                      ========         ========
Off-lease equipment..............................     $  118.3         $  265.9
                                                      ========         ========


                                       66


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Rental income on operating  leases,  which is included in finance  income,
totaled $1.4 billion for the year ended December 31, 2004,  $1.5 billion for the
year ended  December 31, 2003,  $0.4 billion for the three months ended December
31, 2002, and $1.7 billion for the year ended  September 30, 2002. The following
table presents future minimum lease rentals on  non-cancelable  operating leases
at December 31, 2004.  Excluded from this table are variable rentals  calculated
on the level of asset usage,  re-leasing  rentals,  and expected  sales proceeds
from remarketing operating lease equipment at lease expiration, all of which are
components of operating lease profitability ($ in millions).

Years Ended December 31,                                                Amount
------------------------                                                ------
2005 ..............................................................    $1,099.9
2006 ..............................................................       742.7
2007 ..............................................................       445.3
2008 ..............................................................       301.9
2009 ..............................................................       205.2
Thereafter                                                                273.2
                                                                       --------
   Total ..........................................................    $3,068.2
                                                                       ========

Note 5 -- Concentrations

      The following  table  summarizes the geographic and industry  compositions
(by obligor) of financing and leasing portfolio assets ($ in millions):




                                                                    December 31, 2004       December 31, 2003
                                                                   -------------------     ------------------
Geographic                                                         Amount      Percent     Amount     Percent
                                                                   ------      -------     ------     -------
                                                                                           
North America:
West...........................................................   $ 8,595.3     19.0%     $ 7,485.5    18.7%
Northeast......................................................     8,463.4     18.7%       8,319.8    20.8%
Midwest........................................................     6,907.0     15.3%       5,996.2    14.9%
Southeast......................................................     6,283.3     14.0%       5,558.6    13.9%
Southwest......................................................     4,848.3     10.7%       4,423.1    11.0%
Canada.........................................................     2,483.4      5.5%       2,055.5     5.1%
                                                                  ---------    -----      ---------   -----
Total North America............................................    37,580.7     83.2%      33,838.7    84.4%
Other foreign..................................................     7,580.2     16.8%       6,245.2    15.6%
                                                                  ---------    -----      ---------   -----
   Total.......................................................   $45,160.9    100.0%     $40,083.9   100.0%
                                                                  =========    =====      =========   =====

Industry
Manufacturing(1)...............................................   $ 6,932.0     15.4%     $ 7,340.6    18.3%
Retail(2)......................................................     5,859.4     13.0%       5,630.9    14.0%
Commercial airlines (including regional airlines)..............     5,512.4     12.2%       5,039.3    12.6%
Consumer based lending -- home lending..........................    5,069.8     11.2%       2,663.1     6.6%
Transportation(3)..............................................     2,969.6      6.6%       2,934.9     7.3%
Service industries.............................................     2,854.5      6.3%       2,608.3     6.5%
Consumer based lending -- non-real estate(4)....................    2,480.1      5.5%       1,862.1     4.7%
Wholesaling....................................................     1,727.5      3.8%       1,374.7     3.4%
Construction equipment.........................................     1,603.1      3.5%       1,571.2     3.9%
Communications(5)..............................................     1,292.1      2.9%       1,386.5     3.5%
Automotive Services............................................     1,196.3      2.6%       1,152.3     2.9%
Other (no industry greater than 3.0%)(6).......................     7,664.1     17.0%       6,520.0    16.3%
                                                                  ---------    -----      ---------   -----
   Total.......................................................   $45,160.9    100.0%     $40,083.9   100.0%
                                                                  =========    =====      =========   =====


--------------------------------------------------------------------------------
(1)   Includes  manufacturers  of apparel  (2.7%),  followed by food and kindred
      products,   textiles,   transportation  equipment,   chemical  and  allied
      products,  rubber and plastics,  industrial  machinery and equipment,  and
      other industries.

(2)   Includes retailers of apparel (5.6%) and general merchandise (4.0%).

(3)   Includes  rail,  bus,   over-the-road  trucking  industries  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  $335.2 million and $556.3 million of equipment  financed for the
      telecommunications  industry at December 31, 2004 and 2003,  respectively,
      but excludes telecommunications equipment financed for other industries.

(6)   Included in "Other" above are financing and leasing  assets in the energy,
      power and utilities sectors,  which totaled $1.1 billion, or 2.5% of total
      financing and leasing  assets at December 31, 2004.  This amount  includes
      approximately  $805.1  million in project  financing and $259.9 million in
      rail cars on lease.


                                       67


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 6 -- Retained Interests in Securitizations and Other Investments

      Retained interests in securitizations and other investments  designated as
available for sale are shown in the following table ($ in millions).




                                                                             December 31,     December 31,
                                                                                 2004             2003
                                                                             ------------     ------------
                                                                                          
Retained interests in commercial loans:
   Retained subordinated securities.......................................     $ 446.2          $ 558.8
   Interest-only strips...................................................       292.4            367.1
   Cash reserve accounts..................................................       323.4            260.3
                                                                              --------         --------
   Total retained interests in commercial loans...........................     1,062.0          1,186.2
                                                                              --------         --------
Retained interests in consumer loans:
   Retained subordinated securities.......................................        76.6             64.5
   Interest-only strips...................................................        17.0             58.6
   Cash reserve accounts..................................................          --               --
                                                                              --------         --------
   Total retained interests in consumer loans.............................        93.6            123.1
                                                                              --------         --------
Total retained interests in securitizations...............................     1,155.6          1,309.3
Aerospace equipment trust certificates and other(2).......................        72.6             71.5
                                                                              --------         --------
   Total..................................................................    $1,228.2         $1,380.8
                                                                              ========         ========

--------------------------------------------------------------------------------
(1)   Comprised of amounts related to home lending receivables securitized.

(2)   At December 31, 2004 other  includes a $4.7 million  investment  in common
      stock received as part of a loan work-out of an aerospace account.

      The carrying  value of the retained  interests  in  securitized  assets is
reviewed quarterly for valuation impairment.  The following table summarizes the
net accretion  recognized in pretax  earnings,  including the stated  impairment
charges,  and  unrealized  after-tax  gains,  reflected as a part of accumulated
other comprehensive loss ($ in millions):




                                                            Years Ended          Three Months
                                                           December 31,              Ended       Year Ended
                                                       ---------------------     December 31,   September 30,
                                                        2004           2003          2002           2002
                                                       ------         ------     -------------  -------------
                                                                                        
Net accretion in pre-tax earnings...................   $ 44.2         $ 81.5        $ 33.2          $ 97.1
Impairment charges, included in net accretion.......   $ 62.4         $ 66.6        $ 10.6          $ 49.9
Unrealized after tax gains..........................   $  8.4         $  7.7        $ 20.5          $ 25.8


      The securitization  programs cover a wide range of products and collateral
types with different prepayment and credit risk characteristics.  The prepayment
speed,  in the  tables  below,  is  based on  Constant  Prepayment  Rate,  which
expresses  payments as a function of the declining amount of loans at a compound
annual rate.  Weighted  average  expected  credit losses are expressed as annual
loss rates.

      The key assumptions  used in measuring the retained  interests at the date
of securitization for transactions completed during 2004 (there were no consumer
transactions during 2004) were as follows:

                                                         Commercial Equipment
                                                      --------------------------
                                                      Specialty        Equipment
                                                       Finance          Finance
                                                      ---------        ---------
Weighted average prepayment speed...................   38.58%           12.04%
Weighted average expected credit losses.............    0.41%            0.78%
Weighted average discount rate......................    7.18%            9.00%
Weighted average life (in years)....................    1.22             1.94


                                       68


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Key  assumptions  used in  calculating  the  fair  value  of the  retained
interests  in  securitized  assets by product  type at December 31, 2004 were as
follows:



                                                          Commercial Equipment
                                                          ---------------------      Manufactured   Recreational
                                                          Specialty   Equipment       Housing and    Vehicle and
                                                           Finance     Finance       Home Lending       Boat
                                                           -------     -------       ------------   ------------
                                                                                          
Weighted average prepayment speed....................     27.27%        11.82%          26.55%        20.25%
Weighted average expected credit losses..............      1.19%         1.28%           1.55%         1.69%
Weighted average discount rate.......................      7.85%         9.49%          13.08%        14.48%
Weighted average life (in years).....................      0.98          1.38            3.07          2.68


      The impact of adverse  changes to the key assumptions on the fair value of
retained  interests as of December 31, 2004 is shown in the following  tables ($
in millions).

                                                     Manufactured   Recreational
                                        Commercial    Housing and    Vehicle and
                                         Equipment   Home Lending       Boat
                                        ----------    -----------    -----------
Prepayment speed:
  10 percent adverse change ..........   $ (10.6)       $ (4.3)         $ 0.1
  20 percent adverse change ..........     (20.2)         (8.0)           0.2
Expected credit losses:
  10 percent adverse change ..........      (8.3)         (5.4)          (0.9)
  20 percent adverse change ..........     (16.4)         (9.9)          (1.7)
Weighted average discount rate:
  10 percent adverse change ..........      (8.1)         (2.1)          (0.3)
  20 percent adverse change ..........     (15.9)         (4.1)          (0.7)

      These  sensitivities  are  hypothetical  and should be used with  caution.
Changes  in  fair  value  based  on a 10  percent  or 20  percent  variation  in
assumptions  generally  cannot be extrapolated  because the  relationship of the
change in  assumptions  to the change in fair value may not be linear.  Also, in
this table,  the effect of a variation  in a particular  assumption  on the fair
value  of the  retained  interest  is  calculated  without  changing  any  other
assumption.  In reality,  changes in one factor may result in changes in another
(for example, increases in market interest rates may result in lower prepayments
and  increased   credit   losses),   which  might  magnify  or  counteract   the
sensitivities.

      The following tables summarize static pool credit losses,  which represent
the sum of actual  losses (life to date) and  projected  future  credit  losses,
divided by the original  balance of each pool of the  respective  assets for the
securitizations during the period.




                                                     Commercial Equipment                 Home Equity
                                                    Securitizations During:          Securitizations During:
                                                    -----------------------          -----------------------
                                                    2004      2003      2002      2004    2003      2002
                                                    ----      ----      ----      ----    ----      ----
                                                                                     
Actual and projected losses at:
  December 31, 2004 ............................    1.25%     1.52%     1.77%             2.78%     3.24%
  December 31, 2003 ............................              1.74%     2.04%             3.07%     2.72%
  December 31, 2002 ............................                        1.96%                       2.65%
  September 30, 2002 ...........................                        1.92%                       2.68%



                                       69


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      The tables that follow  summarize the  roll-forward  of retained  interest
balances and certain cash flows received from and paid to securitization  trusts
($ in millions).

                                                    Year Ended       Year Ended
                                                   December 31,     December 31,
                                                       2004             2003
                                                   ------------     ------------
Retained Interests
------------------
Retained interest at beginning of period...........   $1,309.3         $1,355.9
New sales..........................................      499.5            640.9
Distributions from trusts..........................     (682.5)          (728.6)
Change in fair value...............................        1.2            (21.1)
Other, including net accretion, and
  clean-up calls...................................       28.1             62.2
                                                      --------         --------
Retained interest at end of period.................   $1,155.6         $1,309.3
                                                      ========         ========
Cash Flows During the Periods
-----------------------------
Proceeds from new securitizations..................   $3,870.4         $4,589.5
Other cash flows received on retained interests....      719.0            688.2
Servicing fees received............................       80.3             80.2
Reimbursable servicing advances, net...............      (6.0)              7.3
Repurchases of delinquent or foreclosed assets
   and ineligible contracts........................      (16.1)           (63.0)
Purchases of contracts through clean-up calls......     (164.5)          (439.8)
Guarantee draws....................................       (3.2)            (2.1)
                                                      --------         --------
   Total, net......................................   $4,479.9         $4,860.3
                                                      ========         ========

      The following table presents net charge-offs and accounts past due 60 days
or more, on both an owned  portfolio  basis and managed  receivable  basis.  Net
charge-off  percentages  are on average  owned  finance  receivables  or managed
receivables,  while the past due percentages are on ending finance receivable or
managed receivable  balances.  Managed  receivables  include finance receivables
plus finance receivables  previously  securitized and still managed by CIT ($ in
millions).




                        At or for the          At or for the          At or for the           At or for the
                         Year Ended             Year Ended         Three Months Ended          Year Ended
                      December 31, 2004      December 31, 2003      December 31, 2002      September 30, 2002
                      -----------------      -----------------      -----------------      ------------------
                                                                               
Net Charge-offs of
Finance Receivables
-------------------
Commercial........   $ 260.2     0.88%      $  494.7    1.79%      $  148.4     2.32%      $  467.9    1.68%
Consumer..........      41.0     1.11%          27.2    1.53%           6.1     2.46%          24.4    1.36%
                     -------                --------               --------                --------
  Total...........   $ 301.2     0.91%      $  521.9    1.77%      $  154.5     2.32%      $  492.3    1.67%
                     =======                ========               ========                ========
Net Charge-offs of
Managed Receivables
-------------------
Commercial........   $ 349.2     0.96%      $  639.5    1.80%      $  199.4     2.30%      $  749.9    2.05%
Consumer..........      60.7     1.17%          40.6    1.02%           6.8     1.03%          30.5    0.83%
                     -------                --------               --------                --------
  Total...........   $ 409.9     0.99%      $  680.1    1.72%      $  206.2     2.21%      $  780.4    1.94%
                     =======                ========               ========                ========
Finance Receivables
Past Due 60 Days
or More
-------------------
Commercial........   $ 491.6     1.64%       $ 587.6    2.05%       $ 925.5     3.47%       $ 996.7    3.62%
Consumer..........     116.4     2.27%          88.7    3.33%          75.8     7.87%          73.3    7.85%
                     -------                --------               --------                --------
  Total...........   $ 608.0     1.73%       $ 676.3    2.16%      $1,001.3     3.63%      $1,070.0    3.76%
                     =======                ========               ========                ========
Managed Receivables
Past Due 60 Days
or More
-------------------
Commercial........   $ 650.6     1.69%       $ 824.4    2.22%      $1,242.8     3.47%      $1,392.6    3.74%
Consumer..........     227.8     3.45%         197.6    4.22%         152.8     4.36%         146.0    4.26%
                     -------                --------               --------                --------
  Total...........   $ 878.4     1.95%      $1,022.0    2.44%      $1,395.6     3.55%      $1,538.6    3.78%
                     =======                ========               ========                ========



                                       70


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 7 -- Other Assets

      Other assets consisted of the following ($ in millions):




                                                                             December 31,     December 31,
                                                                                 2004             2003
                                                                             ------------     ------------
                                                                                            
Other Assets
------------
Accrued interest and receivables from derivative counterparties...........      $  390.0         $  869.9
Investments in and receivables from non-consolidated subsidiaries.........         719.5            603.2
Deposits on commercial aerospace flight equipment.........................         333.1            283.2
Private fund and direct equity investments................................         181.0            249.9
Prepaid expenses..........................................................         105.3            154.7
Repossessed assets and off-lease equipment................................          98.9            122.2
Furniture and fixtures, miscellaneous receivables and other assets........         885.9          1,027.2
                                                                                --------         --------
                                                                                $2,713.7         $3,310.3
                                                                                ========         ========


Note 8 -- Debt

      The following  table  presents data on commercial  paper  borrowings ($ in
millions).

                                                   December 31,     December 31,
                                                       2004             2003
                                                   ------------     ------------
Commercial paper -- outstanding..................    $ 4,210.9        $ 4,173.9
Weighted average interest rate...................         2.55%            1.19%
Weighted average number of days to maturity......      45 days          50 days




                                                                               Three Months
                                            Year Ended        Year Ended           Ended          Year Ended
                                           December 31,      December 31,      December 31,      September 30,
                                               2004              2003              2002              2002
                                           ------------      ------------      ------------      -------------
                                                                                       
Commercial paper -- average
   borrowings..........................      $4,831.3          $4,648.2           $4,758.7         $4,564.7
Maximum amount outstanding.............      $5,326.1          $4,999.1           $4,994.1        $10,713.5
Weighted average interest rate.........          1.68%             1.25%              1.75%            2.25%


      The consolidated  weighted average interest rates on variable-rate  senior
notes at  December  31,  2004 and  December  31,  2003  were  2.63%  and  1.87%,
respectively. Fixed-rate senior debt outstanding at December 31, 2004 matures at
various dates through 2014. The consolidated  weighted-average interest rates on
fixed-rate  senior debt at December 31, 2004 and December 31, 2003 was 5.53% and
6.12%, respectively.  Foreign currency-denominated debt (stated in U.S. Dollars)
totaled  $5,017.5  million at December 31, 2004, of which  $4,335.4  million was
fixed-rate and $682.1 million was  variable-rate.  Foreign  currency-denominated
debt (stated in U.S. Dollars) totaled $1,601.4 million at December 31, 2003, all
of which was fixed-rate.

      The following tables present calendar year contractual  maturities and the
high and low interest rates for total  variable-rate  and fixed-rate  debt ($ in
millions).




                                            Commercial       Variable-rate     December 31,      December 31,
Variable-Rate Term Debt                        Paper         Senior Notes       2004 Total           2003
-----------------------                     ----------       -------------     ------------      ------------
                                                                                     
Due in 2004............................      $     --         $      --          $      --       $  8,980.3
Due in 2005 (rates ranging from
   1.78% to 3.63%).....................       4,210.9           3,355.4            7,566.3          3,333.3
Due in 2006 (rates ranging from
   2.17% to 3.12%).....................            --           3,946.3            3,946.3            985.3
Due in 2007 (rates ranging from
   2.49% to 3.12%).....................            --           3,169.0            3,169.0             37.5
Due in 2008 (rates ranging from
   2.78% to 3.12%).....................            --              50.9               50.9             39.8
Due in 2009 (rates ranging from
   2.62% to 3.12%).....................            --             836.0              836.0               --
Due after 2009 (rates ranging from
   2.78% to 5.39%).....................            --             187.4              187.4            206.1
                                             --------         ---------          ---------        ---------
   Total...............................      $4,210.9         $11,545.0          $15,755.9        $13,582.3
                                             ========         =========          =========        =========



                                       71


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


                                                     December 31,   December 31,
Fixed-Rate Term Debt                                     2004           2003
-------------------                                  ------------   ------------
Due in 2004..........................................  $      --      $ 3,930.2
Due in 2005 (rates ranging from 1.85% to 8.26%)......    4,589.4        4,328.6
Due in 2006 (rates ranging from 1.70% to 7.75%)......    2,723.6        2,639.4
Due in 2007 (rates ranging from 2.35% to 7.75%)......    3,907.6        3,498.9
Due in 2008 (rates ranging from 2.70% to 7.75%)......    1,959.0        1,920.7
Due in 2009 (rates ranging from 3.35% to 7.75%)......    1,378.3          309.4
Due after 2009 (rates ranging from 4.25% to 7.75%)...    7,157.2        3,203.6
                                                       ---------      ---------
   Total.............................................  $21,715.1      $19,830.8
                                                       =========      =========

      At December 31, 2004,  $12.7 billion of unissued debt securities  remained
under a shelf registration statement. The following table represents information
on  unsecured  committed  lines of credit at December 31, 2004 that can be drawn
upon to support commercial paper borrowings ($ in millions).

Expiration                                  Total         Drawn     Available
----------                                  -----         -----     ---------
April 13, 2005..........................   $2,100.0      $   --      $2,100.0
October 14, 2008(1).....................    2,100.0       308.9       1,791.1
April 14, 2009..........................    2,100.0          --       2,100.0
                                           --------      ------      --------
Total credit lines......................   $6,300.0      $308.9      $5,991.1
                                           ========      ======      ========
--------------------------------------------------------------------------------
(1)   CIT has the ability to issue up to $400 million of letters of credit under
      the $2.1 billion facility expiring in 2008, which, when utilized,  reduces
      available borrowings under this facility.

      The credit line agreements  contain clauses that permit  extensions beyond
the expiration  dates upon written consent from the  participating  lenders.  In
addition to the above  lines,  CIT has  undrawn,  unsecured  committed  lines of
credit of $156 million,  which supports the Australia  commercial paper program.
Certain  foreign  operations  utilize  local  financial   institutions  to  fund
operations. At December 31, 2004, local credit facilities totaled $91.7 million,
of which $62.5 million was undrawn and available.

      In  January  2004 and  December  2003,  CIT called at par a total of $1.25
billion in term debt  securities.  These notes were listed on the New York Stock
Exchange  under the ticker  symbols CIC and CIP and were commonly known as PINEs
("Public Income Notes").  The securities'  coupon rates of 8.25% and 8.125% were
marked  down to a market  interest  rate  yield of  approximately  7.5% in CIT's
financial  statements through purchase  accounting.  In light of the high coupon
rates, we called the securities for redemption pursuant to the terms outlined in
the prospectuses.  Once called, we recorded pre-tax gains totaling $50.4 million
in December  2003 and $41.8  million in January  2004  ($30.8  million and $25.5
million after-tax,  respectively), as the cash outlay was less than the carrying
value of the securities.

Preferred Capital Securities

      In  February  1997,  CIT Capital  Trust I (the  "Trust"),  a  wholly-owned
subsidiary of CIT, issued in a private offering $250.0 million liquidation value
of 7.70% Preferred  Capital  Securities (the "Capital  Securities"),  which were
subsequently  registered with the Securities and Exchange Commission pursuant to
an exchange offer.  Each capital security was recorded at the liquidation  value
of $1,000.  The Trust  subsequently  invested  the  offering  proceeds in $250.0
million principal amount Junior  Subordinated  Debentures (the  "Debentures") of
CIT, having  identical rates and payment dates.  The Debentures of CIT represent
the sole assets of the Trust.  Holders of the Capital Securities are entitled to
receive  cumulative  distributions at an annual rate of 7.70% through either the
redemption  date or maturity of the  Debentures  (February 15,  2027).  Both the
Capital  Securities  issued by the Trust and the  Debentures of CIT owned by the
Trust are redeemable in whole or in part on or after February 15, 2007 or at any
time in  whole  upon  changes  in  specific  tax  legislation,  bank  regulatory
guidelines or securities law at the option of CIT at their  liquidation value or
principal  amount.  The securities are redeemable at a specified premium through
February  15,  2017,  at which time the  redemption  price will be at par,  plus
accrued interest. Distributions by the Trust are guaranteed by CIT to the extent
that the Trust has funds available for distribution. The Capital Securities were
valued at $260.0  million on June 1, 2001,  the date of  acquisition by Tyco, in
new basis accounting and the current balance reflects accretion of the premium.


                                       72


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 9 -- Derivative Financial Instruments

      As part of managing exposure to interest rate,  foreign currency,  and, in
limited  instances,  credit  risk,  CIT, as an  end-user,  enters  into  various
derivative transactions, all of which are transacted in over-the-counter markets
with  other  financial  institutions.  Derivatives  are only  utilized  to hedge
exposures, and not for speculative purposes. To ensure both appropriate use as a
hedge  and  to  achieve   hedge   accounting   treatment,   whenever   possible,
substantially all derivatives  entered into are designated  according to a hedge
objective against a specific or forecasted  liability or, in limited  instances,
assets. The notional amounts,  rates, indices, and maturities of our derivatives
closely match the related terms of the underlying hedged items.

      CIT  utilizes  interest  rate  swaps to  exchange  variable-rate  interest
underlying forecasted issuances of commercial paper, specific variable-rate debt
instruments,  and, in limited  instances,  variable-rate  assets for  fixed-rate
amounts.  These  interest  rate  swaps are  designated  as cash flow  hedges and
changes in fair value of these  swaps,  to the extent  they are  effective  as a
hedge,  are  recorded in other  comprehensive  income.  Ineffective  amounts are
recorded in interest expense.

      The components of the adjustment to Accumulated Other  Comprehensive  Loss
for  derivatives  qualifying as hedges of future cash flows are presented in the
following table ($ in millions).




                                                                       Fair Value                     Total
                                                                     Adjustments of     Income      Unrealized
                                                                       Derivatives    Tax Effects      Loss
                                                                     --------------   -----------   ----------
                                                                                              
Balance at December 31, 2002 -- unrealized loss....................      $ 190.8        $(72.5)        $118.3
Changes in values of derivatives qualifying as cash flow hedges...        (126.2)         49.2          (77.0)
                                                                         -------        ------         ------
Balance at December 31, 2003 -- unrealized loss....................         64.6         (23.3)          41.3
Changes in values of derivatives qualifying as cash flow hedges...         (23.3)          9.1          (14.2)
                                                                         -------        ------         ------
Balance at December 31, 2004 -- unrealized loss....................      $  41.3        $(14.2)        $ 27.1
                                                                         =======        ======         ======


      The  unrealized  loss as of December 31, 2004,  presented in the preceding
table,   primarily   reflects  our  use  of  interest   rate  swaps  to  convert
variable-rate debt to fixed-rate debt,  followed by lower market interest rates.
Assuming no change in interest rates, approximately $6.6 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.

      The  ineffective  amounts,  due to  changes in the fair value of cash flow
hedges,  are  recorded as either an increase or decrease to interest  expense as
presented in the following table ($ in millions).




                                                                              Increase/Decrease
                                                          Ineffectiveness    to Interest Expense
                                                          ---------------    -------------------
                                                                            
For the year ended December 31, 2004....................       $1.4               Decrease
For the year ended December 31, 2003....................       $0.2               Increase
For the three months ended December 31, 2002............       $0.4               Decrease
For the year ended September 30, 2002...................       $1.4               Increase


      CIT also utilizes  interest rate swaps to convert  fixed-rate  interest on
specific debt  instruments to variable-rate  amounts.  These interest rate swaps
are designated as fair value hedges and changes in fair value of these swaps are
effectively  recorded as an adjustment to the carrying value of the hedged item,
as the  offsetting  changes in fair value of the swaps and the hedged  items are
recorded in earnings.


                                       73


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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




                                                     December 31,
                                                   ----------------
                                                   2004       2003
                                                   ----       ----
                                                                 
Floating to fixed-rate swaps --                                           Effectively converts the interest rate on an
  cash flow hedges............................   $ 3,533.6   $2,615.0     equivalent amount of commercial paper,
                                                                          variable-rate notes and selected assets to a
                                                                          fixed rate.
Fixed to floating-rate swaps --                                           Effectively converts the interest rate on an
  fair value hedges...........................     7,642.6    6,758.2     equivalent amount of fixed-rate notes and
                                                 ---------   --------     selected assets to a variable rate.
Total interest rate swaps.....................   $11,176.2   $9,373.2
                                                 =========   ========


      In  addition  to the  swaps  in  the  table  above,  in  conjunction  with
securitizations,  at December 31, 2004, CIT has $2.7 billion in notional  amount
of interest rate swaps outstanding with the related trusts to protect the trusts
against interest rate risk. CIT entered into offsetting swap  transactions  with
third parties  totaling $2.7 billion in notional  amount at December 31, 2004 to
insulate the related interest rate risk.

      The following table presents the maturity,  notional principal amounts and
the  weighted  average  interest  rates  expected to be received or paid on U.S.
dollar interest rate swaps at December 31, 2004 ($ in millions).




Maturity                                  Floating to Fixed-rate                  Fixed to Floating-rate
--------                            ---------------------------------        --------------------------------
Years Ending                        Notional       Receive        Pay        Notional       Receive       Pay
December 31,                         Amount         Rate         Rate         Amount         Rate        Rate
------------                         ------         ----         ----         ------         ----        ----
                                                                                       
2005..........................      $1,408.8       2.38%        3.01%        $   11.0       7.85%        3.18%
2006..........................         392.7       2.34%        3.80%           340.8       3.15%        3.11%
2007..........................         295.4       2.30%        4.00%         1,112.7       5.62%        4.39%
2008..........................         362.7       3.21%        6.29%           497.9       4.81%        3.84%
2009..........................         154.6       2.43%        5.63%         1,300.0       4.47%        3.15%
2010 -- Thereafter.............        669.2       2.65%        5.90%         2,228.1       6.83%        3.96%
                                    --------                                 --------
  Total.......................      $3,283.4       2.52%        4.27%        $5,490.5       5.62%        3.79%
                                    ========                                 ========


      The following table presents the maturity,  notional principal amounts and
the weighted  average interest rates expected to be received or paid, of foreign
currency interest rate swaps at December 31, 2004 ($ in million).




                                         Floating to Fixed-rate         Fixed to Floating-rate
                                      -------------------------      -------------------------
                                      Notional   Receive    Pay      Notional    Receive     Pay      Maturity
Foreign Currency                       Amount     Rate     Rate       Amount      Rate      Rate        Range
----------------                       ------     ----     ----       ------      ----      ----        -----
                                                                                         
Euro...............................     $  --      --        --      $  866.3    4.25%     2.58%        2011
British Sterling...................      17.8    5.00%     5.43%        867.1    5.50%     5.42%      2014-2024
Canadian Dollar....................      87.1    2.63%     6.34%        418.7    3.35%     1.80%      2005-2009
Australian Dollar..................     145.3    5.41%     5.49%           --                         2006-2009
                                       ------                        --------
                                       $250.2                        $2,152.1
                                       ======                        ========


      Variable  rates are based on the  contractually  determined  rate or other
market rate indices and may change significantly, affecting future cash flows.

      CIT   utilizes   foreign   currency   exchange   forward   contracts   and
cross-currency swaps to hedge currency risk underlying foreign currency loans to
subsidiaries and the net investments in foreign operations.  These contracts are
designated  as foreign  currency cash flow hedges or net  investment  hedges and
changes in fair value of these  contracts  are  recorded in other  comprehensive
income  along with the  transaction  gains and losses on the  underlying  hedged
items.  CIT utilizes  cross  currency  swaps to hedge  currency risk  underlying
foreign  currency debt and selected  foreign  currency  assets.  These swaps are
designated as foreign currency cash flow hedges or


                                       74


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

foreign  currency fair value hedges and changes in fair value of these contracts
are  recorded  in  other  comprehensive   income  (for  cash  flow  hedges),  or
effectively  as a basis  adjustment  (including  the  impact  of the  offsetting
adjustment  to the  carrying  value of the hedged  item) to the hedged item (for
fair value hedges) along with the transaction gains and losses on the underlying
hedged items.

      At December 31, 2004, CIT was party to foreign  currency  exchange forward
contracts and  cross-currency  swaps.  The following table presents the maturity
and notional principal amounts at December 31, 2004 ($ in millions).

Maturity
Years Ending                               Foreign Currency      Cross-Currency
December 31,                               Exchange Forwards         Swaps
------------                               -----------------     --------------
2005......................................      $1,832.3           $  864.1
2006......................................         760.1               56.6
2007......................................         219.7               61.1
2008......................................           7.0              234.8
2009......................................            --              649.8
2010 -- Thereafter........................            --            1,018.4
                                                --------           --------
   Total..................................      $2,819.1           $2,884.8
                                                ========           ========

      During  2004,  CIT entered  into  credit  default  swaps,  with a combined
notional  value of $98.0  million and terms of 5 years,  to  economically  hedge
certain CIT credit exposures. These swaps do not meet the requirements for hedge
accounting  treatment  and  therefore  are  recorded  at fair  value,  with both
realized  and  unrealized  gains or  losses  recorded  in other  revenue  in the
consolidated  statement of income.  The cumulative  fair value  adjustment as of
December 31, 2004 amounted to a $5.4 million pretax loss.

      CIT also utilizes  Treasury locks (bond  forwards),  which have a notional
amount of $49.1  million at December 31, 2004 and mature in the first quarter of
2005, to hedge  interest rate risk  associated  with planned debt  issuances and
certain other forecasted transactions.  These derivatives are designated as cash
flow hedges of a  forecasted  transaction,  with  changes in fair value of these
contracts recorded in other comprehensive  income.  Gains and losses recorded in
other comprehensive  income are reclassified to earnings in the same period that
the forecasted transaction impacts earnings.

Note 10 -- Accumulated Other Comprehensive Loss

      The  following   table  details  the  components  of   accumulated   other
comprehensive loss, net of tax ($ in millions):




                                                       December 31,    December 31,  December 31,  September 30,
                                                           2004            2003          2002          2002
                                                       ------------    ------------  ------------  -------------
                                                                                           
Changes in fair values of derivatives qualifying
   as cash flow hedges............................        $(27.1)         $(41.3)       $(118.3)       $(120.5)
Foreign currency translation adjustments..........         (37.2)         (105.8)         (75.6)         (75.8)
Minimum pension liability adjustments.............          (2.7)           (0.8)         (20.5)         (21.0)
Unrealized gain on equity and securitization
   investments....................................           8.6             6.3           13.7           21.0
                                                          ------         -------        -------        -------
Total accumulated other comprehensive loss........        $(58.4)        $(141.6)       $(200.7)       $(196.3)
                                                          ======         =======        =======        =======


Note 11 -- Earnings Per Share

      Basic 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  have an
anti-dilutive   effect  are  not  included  in  the   denominator  and  averaged
approximately 17.0 million,  17.4 million,  15.4 million and 15.6 million shares
for the years ended December 31, 2004 and 2003,  three months ended December 31,
2002 and year ended September 30, 2002.


                                       75


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The reconciliation of the numerator and denominator of basic EPS with that
of diluted EPS is presented ($ in millions,  except per share amounts, which are
in whole dollars, shares in thousands).




                                                          Income          Shares       Per Share
                                                        (Numerator)    (Denominator)    Amount
                                                        -----------    -------------   ---------
                                                                                
Year Ended December 31, 2004
Basic EPS:...........................................     $   753.6       211,017        $  3.57
   Income available to common stockholders
Effect of Dilutive Securities:
   Restricted shares.................................            --           764
   Stock options.....................................            --         3,273
                                                          ---------       -------
Diluted EPS..........................................     $   753.6       215,054        $  3.50
                                                          =========       =======
Year Ended December 31, 2003
Basic EPS:
   Income available to common stockholders...........     $   566.9       211,681        $  2.68
Effect of Dilutive Securities:
   Restricted shares.................................            --           396
   Stock options.....................................            --         1,066
                                                          ---------       -------
Diluted EPS..........................................     $   566.9       213,143        $  2.66
                                                          =========       =======
Three Months Ended December 31, 2002
Basic EPS:
   Income available to common stockholders...........        $141.3       211,573        $  0.67
Effect of Dilutive Securities:
   Restricted shares.................................            --           253
   Stock options.....................................            --            --
                                                          ---------       -------
Diluted EPS..........................................     $   141.3       211,826        $  0.67
                                                          =========       =======
Year Ended September 30, 2002
Basic EPS:
   Loss attributable to common stockholders..........     $(6,698.7)      211,573       $ (31.66)
Effect of Dilutive Securities:
   Restricted shares.................................            --           122
   Stock options.....................................            --            --
                                                          ---------       -------
Diluted EPS..........................................     $(6,698.7)      211,695       $ (31.66)
                                                          =========       =======


Note 12 -- Common Stock

      The following table summarizes changes in common stock outstanding for the
respective periods:




                                                      Issued       Less Treasury     Outstanding
                                                      ------       -------------     -----------
                                                                            
Balance at December 31, 2003......................  211,848,997        (43,529)      211,805,468
Treasury shares purchased.........................           --     (4,625,154)       (4,625,154)
Stock options exercised...........................           --      2,970,754         2,970,754
Employee stock purchase plan participation........           --         25,896            25,896
Restricted shares issued..........................      263,206             --           263,206
                                                    -----------     ----------       -----------
Balance at December 31, 2004......................  212,112,203     (1,672,033)      210,440,170
                                                    ===========     ==========       ===========



                                       76


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 13 -- Other Revenue

      The  following  table sets  forth the  components  of other  revenue ($ in
millions).




                                                                                    Three Months
                                                         Years Ended December 31,       Ended       Year Ended
                                                         ------------------------    December 31,  September 30,
                                                           2004            2003         2002           2002
                                                           ----            ----     -------------  -------------
                                                                                          
Fees and other income.................................    $502.9          $586.2       $169.2         $644.5
Factoring commissions.................................     227.0           189.8         55.1          165.5
Gains on sale of leasing equipment....................     101.6            70.7          8.7           13.6
Gains on securitizations..............................      59.1           100.9         30.5          149.0
                                                          ------          ------       ------         ------
  Total other revenue.................................    $890.6          $947.6       $263.5         $972.6
                                                          ======          ======       ======         ======


Note 14 -- Salaries and General Operating Expenses

      The  following  table sets forth the  components  of salaries  and general
operating expenses (excluding goodwill amortization) ($ in millions).




                                                                                    Three Months
                                                         Years Ended December 31,       Ended       Year Ended
                                                         ------------------------    December 31,  September 30,
                                                          2004             2003         2002           2002
                                                          ----             ----     -------------  -------------
                                                                                          
Salaries and employee benefits.......................   $  612.2          $529.6        $126.8        $517.4
Other operating expenses -- CIT.......................     434.2           383.3         105.8         380.6
Other operating expenses -- TCH.......................        --              --            --          23.0
                                                        --------          ------        ------        ------
  Total..............................................   $1,046.4          $912.9        $232.6        $921.0
                                                        ========          ======        ======        ======


Note 15 -- Income Taxes

      The effective tax rate varied from the statutory  federal corporate income
tax rate as follows:




                                                                   Percentage of Pretax Income
                                                 ---------------------------------------------------------------
                                                  Year Ended    Year Ended    Three Months Ended    Year Ended
                                                 December 31,  December 31,      December 31,      September 30,
                                                     2004          2003              2002              2002
                                                 ------------  ------------      ------------      -------------
                                                                                           
Federal income tax rate.......................      35.0%          35.0%            35.0%              35.0%
Increase (decrease) due to:
State and local income taxes, net of
  federal income tax benefit..................       3.2            3.7              2.6               (0.3)
Foreign income taxes..........................       1.4            1.0              1.6               (0.4)
Goodwill impairment...........................        --             --               --              (36.1)
Interest expense -- TCH........................       --             --               --               (4.2)
Other.........................................      (0.6)          (0.7)            (0.2)               0.1
                                                    ----           ----             ----               ----
Effective tax rate............................      39.0%          39.0%            39.0%              (5.9)%
                                                    ====           ====             ====               ====


   The provision for income taxes is comprised of the following ($ in millions):




                                                  Year Ended    Year Ended    Three Months Ended    Year Ended
                                                 December 31,  December 31,      December 31,      September 30,
                                                     2004          2003              2002              2002
                                                 ------------  ------------      ------------      -------------
                                                                                          
Current federal income tax provision..........      $  1.5        $   --            $  --             $   --
Deferred federal income tax provision.........       321.0         265.1             71.9              276.9
                                                    ------        ------            -----             ------
Total federal income taxes....................       322.5         265.1             71.9              276.9
State and local income taxes..................        69.1          53.5              9.4               30.4
Foreign income taxes..........................        91.6          46.4             10.7               66.7
                                                    ------        ------            -----             ------
  Total provision for income taxes............      $483.2        $365.0            $92.0             $374.0
                                                    ======        ======            =====             ======



                                       77


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The tax effects of  temporary  differences  that give rise to  significant
portions of the deferred  income tax assets and  liabilities are presented below
($ in millions):

                                                     December 31,   December 31,
                                                         2004           2003
                                                     ------------   ------------
Assets:
Net operating loss carryforwards...................   $   852.1       $  834.1
Provision for credit losses........................       190.5          202.4
Alternative minimum tax credits....................       142.0          142.0
Purchase price adjustments.........................        15.0           67.9
Goodwill...........................................        45.5           65.6
Other comprehensive income items...................         9.8           47.6
Accrued liabilities and reserves...................        22.0           43.8
Other..............................................        51.8           14.1
                                                      ---------       --------
  Total deferred tax assets........................     1,328.7        1,417.5
                                                      ---------       --------
Liabilities:
Leasing transactions (including securitizations)...    (2,159.0)      (1,944.7)
                                                      ---------       --------
Net deferred tax (liability).......................   $  (830.3)      $ (527.2)
                                                      =========       ========

      At  December  31,  2004,  CIT had U.S.  federal  net  operating  losses of
approximately $2.0 billion,  which expire in various years beginning in 2011. In
addition, CIT has various state net operating losses that will expire in various
years beginning in 2005.  Federal and state  operating  losses may be subject to
annual use limitations  under section 382 of the Internal  Revenue Code of 1986,
as amended, and other limitations under certain state laws.  Management believes
that CIT will have  sufficient  taxable  income  in  future  years and can avail
itself  of tax  planning  strategies  in order to fully  utilize  these  federal
losses. Accordingly, CIT does not believe a valuation allowance is required with
respect to these federal net operating losses. As of December 31, 2004, based on
management's  assessment  as to  realizability,  the net deferred tax  liability
includes a valuation  allowance of approximately  $7.4 million relating to state
net operating losses.

Note 16 -- Postretirement and Other Benefit Plans

Retirement and Postretirement Medical and Life Insurance Benefit Plans

      CIT has a number of funded and unfunded  noncontributory  defined  benefit
pension plans covering certain of its U.S. and non-U.S.  employees,  designed in
accordance  with the  conditions and practices in the countries  concerned.  The
retirement  benefits  under the defined  benefit  pension plans are based on the
employee's  age,  years of service and  qualifying  compensation.  CIT's funding
policy is to make  contributions to the extent such  contributions  are not less
than the minimum  required by applicable  laws and  regulations,  are consistent
with our  long-term  objective of ensuring  sufficient  funds to finance  future
retirement  benefits,   and  are  tax  deductible  as  actuarially   determined.
Contributions  are charged to the salaries and  employee  benefits  expense on a
systematic basis over the expected average remaining service period of employees
expected to receive benefits.

      The largest plan is the CIT Group Inc. Retirement Plan (the "Plan"), which
accounts for 76% of the total benefit  obligation at December 31, 2004. The Plan
covers U.S.  employees  of CIT who have  completed  one year of service and have
attained the age of 21. The Company  also  maintains a  Supplemental  Retirement
Plan for employees whose benefit in the Plan is subject to Internal Revenue Code
limitations.

      The Plan has a "cash  balance"  formula that became  effective  January 1,
2001.  Certain  eligible  members  had the  option of  remaining  under the Plan
formula as in effect prior to January 1, 2001.  Under the cash balance  formula,
each member's  accrued benefits as of December 31, 2000 were converted to a lump
sum amount, and every year thereafter, the balance is credited with a percentage
(5% to 8%  depending  on  years  of  service)  of the  member's  "Benefits  Pay"
(comprised of base salary,  plus certain annual  bonuses,  sales  incentives and
commissions).  These balances also receive annual interest  credits,  subject to
certain government limits. The


                                       78


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

interest credit was 5.11%, 5.01% and 5.76% for the plan years ended December 31,
2004, 2003 and 2002,  respectively.  Upon  termination or retirement  after five
years of employment, the amount credited to a member is to be paid in a lump sum
or converted into an annuity at the option of the member.

      CIT also  provides  certain  healthcare  and life  insurance  benefits  to
eligible  retired U.S.  employees.  For most eligible  retirees,  the healthcare
benefit is contributory; the life insurance benefit is noncontributory. Salaried
participants  generally  become eligible for retiree  healthcare  benefits after
reaching age 55 with 11 years of  continuous  CIT service  immediately  prior to
retirement. Generally, the medical plan pays a stated percentage of most medical
expenses,  reduced by a  deductible  as well as by payments  made by  government
programs and other group  coverage.  The retiree health care benefit  includes a
limit on CIT's share of costs for all  employees  who retired  after January 31,
2002. The plans are funded on a pay as you go basis.

      CIT uses its disclosure  date as the  measurement  date for all Retirement
and  Postretirement  Medical and Life Insurance  Benefit Plans.  The measurement
dates included in this report for the Retirement and Postretirement  Medical and
Life Insurance Plans are December 31, 2004, 2003, and 2002.


                                       79


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The  following  tables set forth the change in  benefit  obligation,  plan
assets and funded  status of the  retirement  plans as well as the net  periodic
benefit  cost  ($ in  millions).  All  periods  presented  include  amounts  and
assumptions relating to the Plan, the unfunded Supplemental  Retirement Plan, an
Executive Retirement Plan and various international plans.





                                                                            Retirement Benefits
                                                           -----------------------------------------------------
                                                               Year         Year     Three Months      Year
                                                               Ended        Ended        Ended         Ended
                                                           December 31, December 31, December 31,  September 30,
                                                               2004         2003         2002          2002
                                                           ------------ ------------ ------------  -------------
                                                                                          
Change in Benefit Obligation
Benefit obligation at beginning of period...............       $273.0       $225.2      $ 214.4       $184.4
Service cost............................................         17.7         15.6          4.0         12.6
Interest cost...........................................         15.6         14.4          3.5         13.0
Actuarial loss..........................................         18.0         23.9          6.2         15.6
Benefits paid...........................................         (5.1)        (4.6)        (1.1)        (4.2)
Plan settlements and curtailments.......................         (6.2)        (4.5)        (2.3)        (7.6)
Currency translation adjustment.........................          1.5          2.2          0.5          0.6
Other...................................................           --          0.8           --           --
                                                               ------       ------      -------       ------
Benefit obligation at end of period.....................       $314.5       $273.0      $ 225.2       $214.4
                                                               ======       ======      =======       ======
Change in Plan Assets
Fair value of plan assets at beginning of period........       $212.8       $123.1      $ 119.6       $126.5
Actual return on plan assets............................         25.5         28.7          6.1        (12.7)
Employer contributions..................................         23.0         69.4          0.6         16.9
Plan settlements........................................         (6.2)        (4.5)        (2.3)        (7.1)
Benefits paid...........................................         (5.1)        (4.6)        (1.1)        (4.2)
Currency translation adjustment.........................          0.6          0.7          0.2          0.2
                                                               ------       ------      -------       ------
Fair value of plan assets at end of period..............       $250.6        212.8      $ 123.1       $119.6
                                                               ======       ======      =======       ======
Reconciliation of Funded Status
Funded status...........................................       $(63.9)      $(60.2)     $(102.1)      $(94.8)
Unrecognized net actuarial loss.........................         63.9         57.8         56.5         54.7
Unrecognized prior service cost.........................           --           --           --           --
                                                               ------       ------      -------       ------
Net amount recognized...................................       $   --       $ (2.4)     $ (45.6)      $(40.1)
                                                               ======       ======      =======       ======
Amounts Recognized in the Consolidated Balance Sheets
Prepaid benefit cost....................................       $ 51.3       $ 45.2          $ --      $  --
Accrued benefit liability...............................        (55.1)       (48.9)       (79.2)       (75.0)
Intangible asset........................................           --           --           --           --
Accumulated other comprehensive income..................          3.8          1.3         33.6         34.9
                                                               ------       ------      -------       ------
Net amount recognized...................................       $   --       $ (2.4)     $ (45.6)      $(40.1)
                                                               ======       ======      =======       ======
Weighted-average Assumptions Used to Determine
   Benefit Obligations at Period End
Discount rate...........................................         5.70%        5.96%        6.45%        6.68%
Rate of compensation increase...........................         4.25%        4.26%        4.24%        4.22%
Weighted-average Assumptions Used to Determine
   Net Periodic Pension Cost for Periods
Discount rate...........................................         5.96%        6.45%        6.68%        7.40%
Rate of compensation increase...........................         4.26%        4.24%        4.22%        4.70%
Expected long-term return on plan assets................         7.95%        7.92%        7.90%        9.93%
Components of Net Periodic Benefit Cost
Service cost............................................       $ 17.7       $ 15.6      $   4.0       $ 12.6
Interest cost...........................................         15.6         14.4          3.5         13.0
Expected return on plan assets..........................        (16.2)        (9.4)        (2.3)       (11.9)
Amortization of net loss................................          2.8          3.5          0.8          0.3
Amortization of prior service cost......................           --           --           --           --
                                                               ------       ------      -------       ------
Total net periodic expense..............................       $ 19.9       $ 24.1      $   6.0       $ 14.0
                                                               ======       ======      =======       ======



                                       80


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Expected long-term rate of return assumptions for pension assets are based
on projected  asset  allocation and  historical and expected  future returns for
each asset class.  Independent  analysis of historical and projected asset class
returns, inflation and interest rates are provided by our investment consultants
and reviewed as part of the process to develop our assumptions.

      The accumulated  benefit  obligation for all defined benefit pension plans
was $271.2  million,  $232.4  million,  and $193.0 million at December 31, 2004,
2003, and, 2002,  respectively.  Plans with accumulated  benefit  obligations in
excess of plan assets relate primarily to  non-qualified  U.S. plans and certain
international  plans.  The following table presents  additional data relating to
these plans ($ in millions).




                                                               Year         Year     Three Months      Year
                                                               Ended        Ended        Ended         Ended
                                                           December 31, December 31, December 31,  September 30,
                                                               2004         2003         2002          2002
                                                           ------------ ------------ ------------  -------------
                                                                                          
Information for Pension Plans with an Accumulated
   Benefit Obligation in Excess of Plan Assets
Projected benefit obligation............................       $ 74.2       $ 61.2       $225.2       $214.4
Accumulated benefit obligation..........................         59.0         47.4        193.0        184.6
Fair value of plan assets...............................          9.9          7.1        123.1        119.6
Additional Information
(Decrease) increase in Minimum Liability Included in
   Other Comprehensive Income...........................       $  2.5       $(32.3)      $ (1.3)      $ 34.9
Expected Future Cashflows
Expected Company Contributions in the following
   fiscal year..........................................       $  4.0
Expected Benefit Payments
   1st Year following the disclosure date...............       $ 22.7
   2nd Year following the disclosure date...............       $ 13.5
   3rd Year following the disclosure date...............       $ 18.7
   4th Year following the disclosure date...............       $ 14.0
   5th Year following the disclosure date...............       $ 16.6
   Years 6 thru 10 following the disclosure date........       $106.6
Pension Plan Weighted-average Asset Allocations
Equity securities.......................................         59.7%        67.6%        61.1%        58.2%
Debt securities.........................................         36.0%        32.1%        38.6%        41.7%
Real estate.............................................           --           --           --           --
Other...................................................          4.3%         0.3%         0.3%         0.1%
                                                                -----        -----        -----        -----
Total pension assets....................................        100.0%       100.0%       100.0%       100.0%
                                                                =====        =====        =====        =====


      Of the 4.3% identified as other, approximately 3.5%, or $8.75 million, was
temporarily  being held in cash for investment in equity securities on the first
business day of the following year.

      CIT  maintains a "Statement of Investment  Policies and  Objectives"  that
specifies investment  guidelines  pertaining to the investment,  supervision and
monitoring of pension assets to ensure consistency with the long-term  objective
of ensuring sufficient funds to finance future retirement  benefits.  The policy
asset allocation guidelines allows for assets to be allocated between 50% to 70%
in Equities and 30% to 50% in Fixed-Income  investments.  The guidelines provide
specific guidance related to asset class objectives, fund manager guidelines and
identification of both prohibited and restricted transactions,  and are reviewed
on a periodic basis by both the Employee Benefits Plans Committee of CIT and the
Plans'  external  investment  consultants  to ensure  the  long-term  investment
objectives  are  achieved.  Members of the  Committee are appointed by the Chief
Executive  Officer  of CIT  and  include  the  Chief  Executive  Officer,  Chief
Financial Officer, General Counsel, and other senior executives.

      There were no equity securities of CIT or its subsidiaries included in the
pension  plan assets at December  31,  2004,  2003 and 2002,  respectively.  CIT
expects to contribute  $4.0 million to its pension plans and $4.0 million to its
other postretirement benefit plans in 2005.


                                       81


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The following tables set forth data relating to postretirement plans ($ in
millions).




                                                                          Postretirement Benefits
                                                            -------------------------------------------------------
                                                                Year          Year      Three Months      Year
                                                                Ended         Ended         Ended         Ended
                                                            December 31,  December 31,  December 31,  September 30,
                                                                2004          2003          2002          2002
                                                            ------------  ------------  ------------  -------------
                                                                                            
Change in Benefit Obligation
Benefit obligation at beginning of period...............       $ 58.0       $ 48.1         $ 46.7       $ 39.5
Service cost............................................          1.9          1.5            0.3          1.2
Interest cost...........................................          3.2          3.0            0.8          2.9
Actuarial loss..........................................           .7          9.6            0.8          5.3
Net benefits paid.......................................         (3.9)        (4.2)          (0.5)        (2.2)
Plan amendments.........................................           --           --             --           --
                                                               ------       ------         ------       ------
Benefit obligation at end of period.....................       $ 59.9       $ 58.0         $ 48.1       $ 46.7
                                                               ======       ======         ======       ======
Change in Plan Assets
Fair value of plan assets at beginning of period........       $   --       $   --         $   --       $   --
Net benefits paid.......................................         (3.9)        (4.2)          (0.5)        (2.2)
Employer contributions..................................          3.9          4.2            0.5          2.2
                                                               ------       ------         ------       ------
Fair value of plan assets at end of period..............       $   --       $   --         $   --       $   --
                                                               ======       ======         ======       ======
Reconciliation of Funded Status
Funded status...........................................       $(59.9)      $(58.0)        $(48.1)      $(46.7)
Unrecognized net actuarial loss.........................         15.6         15.5            6.0          5.2
                                                               ------       ------         ------       ------
Accrued cost............................................       $(44.3)      $(42.5)        $(42.1)      $(41.5)
                                                               ======       ======         ======       ======
Amounts Recognized in the Consolidated Balance Sheets
Prepaid benefit cost....................................       $   --       $   --         $   --       $   --
Accrued benefit liability...............................        (44.3)       (42.5)         (42.1)       (41.5)
Intangible asset........................................           --           --             --           --
Accumulated other comprehensive income..................           --           --             --           --
                                                               ------       ------         ------       ------
Net amount recognized...................................       $(44.3)      $(42.5)        $(42.1)      $(41.5)
                                                               ======       ======         ======       ======
Weighted-average Assumptions Used to Determine
   Benefit Obligations at Period End
Discount rate...........................................         5.50%        6.00%          6.50%        6.75%
Rate of compensation increase...........................         4.25%        4.25%          4.25%        4.25%
Weighted-average Assumptions Used to Determine Net
   Periodic Benefit Cost for periods
Discount rate...........................................         6.00%        6.50%          6.75%        7.50%
Rate of compensation increase...........................         4.25%        4.25%          4.25%        4.50%
Components of Net Periodic Benefit Cost
Service cost............................................       $  1.9       $  1.5         $  0.3       $  1.2
Interest cost...........................................          3.2          3.0            0.8          2.9
Amortization of prior service cost......................           --           --             --           --
Amortization of net loss................................          0.6          0.1             --          0.1
                                                               ------       ------         ------       ------
Total net periodic expense..............................       $  5.7       $  4.6         $  1.1       $  4.2
                                                               ======       ======         ======       ======

Assumed Health Care Trend Rates at Period End
Healthcare cost trend rate assumed for next year
   Pre-65...............................................        12.00%       12.00%         10.00%       11.00%
   Post-65..............................................        10.00%       12.00%         10.00%       11.00%
Rate to which the cost trend rate is assumed to
   decline (the ultimate trend rate)....................         5.00%        5.00%          5.00%        5.00%
Year that the rate reaches the ultimate trend rate......         2018         2018           2008         2008



                                       82


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Assumed  healthcare  cost  trend  rates have a  significant  effect on the
amounts  reported for the  healthcare  plans. A  one-percentage  point change in
assumed health care cost trend rates would have the following  estimated effects
($ in millions).




                                                                          Postretirement Benefits
                                                           -----------------------------------------------------
                                                               Year         Year     Three Months      Year
                                                               Ended        Ended        Ended         Ended
                                                           December 31, December 31, December 31,  September 30,
                                                               2004         2003         2002          2002
                                                           ------------ ------------ ------------  -------------
                                                                                          
Effect of One-percentage Point Increase on:
Period end postretirement benefit obligation............      $ 2.8        $ 2.7        $ 2.3         $ 2.2
Total of service and interest
cost components.........................................      $ 0.2        $ 0.1        $  --         $ 0.1

Effect of One-percentage Point Decrease on:
Period end postretirement benefit obligation............      $(2.7)       $(2.6)       $(2.2)        $(2.1)
Total of service and interest cost components...........      $(0.2)       $(0.1)       $  --         $(0.1)


      On December 8, 2003,  the  President of the United  States signed into law
the Medicare  Prescription  Drug Improvement and  Modernization Act of 2003. The
Act introduces a prescription  drug benefit under Medicare  (Medicare Part D) as
well as a federal  subsidy to sponsors of retiree health care benefit plans that
provide a benefit that is at least actuarially equivalent to Medicare Part D. In
accordance  with FASB Staff Position No. FAS 106-2,  "Accounting  and Disclosure
Requirements   related  to  the  Medicare   Prescription  Drug  Improvement  and
Modernization  Act of 2003",  CIT  prospectively  recognized  the effects of the
subsidy in the third quarter 2004. In total, at the time of recognition, July 1,
2004,  it was  estimated  that  future  subsidies  would  reduce  the  Company's
accumulated  postretirement benefit obligation by approximately $3.5 million. As
a result,  the 2004 net periodic  postretirement  benefit expense was reduced by
$0.3  million.  Projected  benefit  payments  and the effects of the Medicare Rx
subsidy recognition are as follows:
                                                           Medicare
Projected Benefit Payments                       Gross    Rx Subsidy       Net
------------------------                        ------    ----------     ------
2005..........................................   $ 4.0       $ --         $ 4.0
2006..........................................   $ 4.2       $0.3         $ 3.9
2007..........................................   $ 4.5       $0.4         $ 4.1
2008..........................................   $ 4.7       $0.4         $ 4.3
2009..........................................   $ 4.8       $0.4         $ 4.4
2010 - 2014...................................   $24.2       $1.8         $22.4

Savings Incentive Plan

      CIT also has a number of defined  contribution  retirement  plans covering
certain  of its  U.S.  and  non-U.S.  employees,  designed  in  accordance  with
conditions and practices in the countries concerned.  Employee  contributions to
the  plans  are  subject  to  regulatory   limitations  and  the  specific  plan
provisions. The largest plan is the CIT Group Inc. Savings Incentive Plan, which
qualifies under section 401(k) of the Internal Revenue Code and accounts for 85%
of CIT's total Savings  Incentive  Plan expense for the year ended  December 31,
2004. CIT's expense is based on specific  percentages of employee  contributions
and plan  administrative  costs and aggregated $19.9 million,  $16.9 million and
$4.0  million and for the years ended  December  31, 2004 and 2003 and the three
months ended December 31, 2002.

Corporate Annual Bonus Plan

      The CIT Group Inc. Annual Bonus Plan and Discretionary Bonus Plan together
make-up CIT's annual cash bonus plan.  The amount of awards depends on a variety
of factors,  including corporate  performance and individual  performance during
the fiscal  period for which  awards are made and is subject to  approval by the
Compensation  Committee  of the  Board of  Directors.  Bonus  payments  of $74.4
million for the year ended  December 31, 2004,  were paid in February  2005. For
the year ended December 31, 2003,  $59.0 million were awarded.  A bonus of $20.1
million for the six months performance period from July 1, 2002 through December
31, 2002 was paid in February 2003.


                                       83


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Long-Term Equity Compensation Plan

      CIT sponsors a Long-Term  Equity  Compensation  Plan (the "ECP").  The ECP
allows CIT to issue to employees up to 36,000,000 shares of common stock through
grants of annual incentive awards,  incentive and  non-qualified  stock options,
stock appreciation rights,  restricted stock, performance shares and performance
units. Of the 36,000,000  shares, no more than 5,000,000 shares may be issued in
connection with awards of restricted stock,  performance  shares and performance
units.  Common stock issued under the ECP may be either  authorized but unissued
shares, treasury shares or any combination thereof. Options granted to employees
in 2004 have a vesting  schedule of one third per year for three  years,  have a
10-year term from the date of grant and were issued with strike  prices equal to
the fair market value of the common stock on the date of grant. Restricted stock
granted  to  employees  in  2004  has two or  three-year  cliff  vesting.  A new
Performance Share program was rolled out in 2004.  Performance Share grants have
a three-year performance-based vesting.

      Data for the stock option plans is summarized as follows:





                                                    Year Ended December 31, 2004    Year Ended December 31, 2003
                                                    ----------------------------    ----------------------------
                                                                      Weighted                       Weighted
                                                                   Average Price                   Average Price
                                                      Options        Per Option      Options        Per Option
                                                    -----------    -------------    ----------    --------------
                                                                                         
Outstanding at beginning of period................   18,766,824        $30.48       15,335,255       $33.13
January Grant.....................................    1,895,632        $39.22        4,240,644       $21.05
July Grant........................................    1,802,050        $37.60          648,485       $27.74
Granted - Other...................................      673,624        $35.12          485,625       $27.27
Exercised.........................................   (2,970,754)       $23.52         (870,357)      $23.02
Forfeited.........................................     (303,469)       $36.67       (1,072,828)      $34.25
                                                     ----------        ------       ----------       ------
Outstanding at end of period......................   19,863,907        $33.07       18,766,824       $30.48
                                                     ==========        ======       ==========       ======
Options exercisable at end of period..............    8,201,726        $39.34        6,730,863       $43.18
                                                     ==========        ======       ==========       ======


      In 2004,  3,697,682  options  were  granted  to  employees  as part of the
long-term  incentive process.  In addition,  673,624 CIT options were granted to
new hires as well as for retention  purposes.  In 2003,  4,889,129  options were
granted to employees as part of the long-term  incentive  process.  In addition,
485,625 CIT  options  were  granted to new hires and  employees  returning  from
leaves of absence.

      The weighted average fair value of new options granted was $7.51 and $5.30
for the years ended  December  31, 2004 and 2003.  The fair value of new options
granted  was   determined   at  the  date  of  grant  using  the   Black-Scholes
option-pricing model, based on the following assumptions. Due to limited Company
history as a public company, no forfeiture rate was used.




                                             Expected           Average         Expected            Risk Free
Option Issuance                          Option Life Range  Dividend Yield  Volatility Range    Interest Rate Range
---------------                          -----------------  --------------  ----------------    -------------------
                                                                                        
2004
January, 2004.......................         3-5 Years           1.22%        21.5% - 23.4%         2.20% - 3.02%
February, 2004......................         3-5 Years           1.33%        21.5% - 23.4%         2.16% - 2.98%
February, 2004 -- Director Grant....          10 Years           1.33%            22.4%                 4.02%
April, 2004.........................          5 Years            1.48%            23.3%                 3.52%
May, 2004...........................          5 Years            1.51%            23.3%                 3.96%
May, 2004 -- Director Grant.........          10 Years           1.51%            22.4%                 4.83%
July, 2004..........................         3-5 Years           1.38%        20.5% - 23.0%         3.10% - 3.72%
September, 2004.....................         3-5 Years           1.41%        20.5% - 23.0%         2.83% - 3.38%
October, 2004.......................         3-5 Years           1.42%        18.4% - 22.6%         2.78% - 3.26%



                                       84


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




                                             Expected           Average         Expected            Risk Free
Option Issuance                          Option Life Range  Dividend Yield  Volatility Range    Interest Rate Range
---------------                          -----------------  --------------  ----------------    -------------------
                                                                                       
2003
January, 2003.......................         3-5 years           2.28%       31.6% - 33.4%         2.11% - 3.00%
January, 2003 -- Director Grant......         10 Years           2.28%           28.2%                 4.01%
March 2003 -- Other..................        3-5 Years           2.65%       29.5% - 33.2%         2.12% - 2.97%
May, 2003 -- Director Grant..........         10 Years           2.11%           28.2%                 3.44%
July, 2003..........................         3-5 years           1.70%       29.3% - 31.0%         2.06% - 3.10%
July, 2003 -- Director Grant.........         10 Years           1.70%           28.1%                 4.20%
September, 2003 -- Other.............        3-5 Years           1.70%       29.3% - 31.0%         2.62% - 3.61%


      The following table summarizes information about stock options outstanding
and options exercisable at December 31, 2004 and 2003.





                                               Options Outstanding                     Options Exercisable
                                   --------------------------------------------     ----------------------------
           Range of                             Weighted Average    Weighted                         Weighted
           Exercise                  Number        Contractual       Average          Number          Average
             Price                 Outstanding        Life       Exercise Price     Exercisable   Exercise Price
           --------                -----------  ---------------- --------------     -----------   --------------
            2004
                                                                                       
       $18.14 -  $27.21            10,503,846         7.7            $ 22.35         4,076,055        $ 22.62
       $27.22 -  $40.83             6,608,016         8.7            $ 36.20         1,373,626        $ 34.66
       $40.84 -  $61.26               858,846         4.9            $ 51.24           858,846        $ 51.24
       $61.27 -  $91.91             1,758,648         3.3            $ 68.89         1,758,648        $ 68.89
       $91.92 - $137.87               132,961         3.1            $131.01           132,961        $131.01
      $137.88 - $206.82                 1,590         3.4            $160.99             1,590        $160.99
                                   ----------                                        ---------
                                   19,863,907                                        8,201,726
                                   ==========                                        =========
            2003
       $18.14 -  $27.21            13,343,619         8.7            $ 22.38         2,850,463        $ 22.98
       $27.22 -  $40.83             2,598,485         8.3            $ 32.93         1,055,680        $ 35.38
       $40.84 -  $61.26               899,290         5.9            $ 51.27           899,290        $ 51.27
       $61.27 -  $91.91             1,779,982         4.4            $ 68.90         1,779,982        $ 68.90
       $91.92 - $137.87               143,858         4.1            $130.82           143,858        $130.82
      $137.88 - $206.82                 1,590         4.4            $160.99             1,590        $160.99
                                   ----------                                        ---------
                                   18,766,824                                        6,730,863
                                   ==========                                        =========


Employee Stock Purchase Plan

      In October 2002,  CIT adopted an Employee Stock Purchase Plan (the "ESPP")
for all employees  customarily  employed at least 20 hours per week. The ESPP is
available  to  employees  in the  United  States  and to  certain  international
employees.  Under the ESPP, CIT is authorized to issue up to 1,000,000 shares of
common stock to eligible employees.  Employees can choose to have between 1% and
10% of their base salary  withheld to purchase shares  quarterly,  at a purchase
price  equal to 85% of the fair market  value of CIT common  stock on either the
first  business day or the last business day of the quarterly  offering  period,
whichever  is lower.  The  amount of common  stock  that may be  purchased  by a
participant  through the plan is generally  limited to $25,000 per year. A total
of 87,551  shares were  purchased  under the plan in 2004 and 88,323 shares were
purchased under the plan in 2003.

Restricted Stock

      A new  Performance  Shares program was launched in February 2004 under the
Long-Term  Compensation Plan, and 693,328 performance shares were awarded. These
shares have a  three-year  performance-based  vesting  period.  The  performance
targets are based upon a combination of  consolidated  return on tangible equity
measurements and compounded annual EPS growth rates.

      During 2004,  59,163 restricted shares were awarded to employees under the
Long-Term Equity Compensation Plan. These shares were awarded at the fair market
value on the date of the grant and have a two or three-year  cliff-vest  period.
In addition,  10,481 shares were granted to independent  members of the Board of
Directors, who elected


                                       85


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

to receive shares in lieu of cash  compensation  for their retainer.  In
2003, CIT issued 1,229,450  restricted shares to employees and 6,488 shares were
granted to independent members of the Board of Directors.  The restricted shares
issued to directors in lieu of cash  compensation  vest on the first anniversary
of the grant.

      For the year ended December 31, 2004 and 2003, three months ended December
31, 2002 and year ended September 30, 2002,  $23.5 million,  $8.8 million,  $1.2
million and $5.2 million, respectively, of expenses are included in salaries and
general operating expenses related to restricted stock.


Note 17 -- Commitments and Contingencies


      The   accompanying   table   summarizes   the   contractual   amounts   of
credit-related   commitments  and  purchase  and  funding  commitments.   ($  in
millions).




                                                                       December 31, 2004
                                                              -------------------------------------
                                                                  Due to Expire                       December 31,
                                                              ----------------------                     2003
                                                               Within         After        Total         Total
                                                              One Year      One Year    Outstanding   Outstanding
                                                              --------      --------    -----------   -----------
Credit Related Commitments
                                                                                            
Financing and leasing assets..............................    $1,467.5      $6,960.8      $8,428.3      $5,934.3
Letters of credit and acceptances:
Standby letters of credit.................................       611.0           7.3         618.3         508.7
Other letters of credit...................................       588.3            --         588.3         694.0
Acceptances...............................................        16.4            --          16.4           9.3
Guarantees................................................       120.9          12.2         133.1         133.2
Purchase and Funding Commitments
Aerospace purchase commitments............................       906.0       1,262.0       2,168.0       2,934.0
Other manufacturer purchase commitments...................       397.0            --         397.0         197.2
Sale-leaseback payments...................................        31.0         464.4         495.4         486.4
Venture capital fund commitments..........................         0.5          79.3          79.8         124.2


      In the normal course of meeting the financing needs of its customers,  CIT
enters into various credit-related commitments, including commitments to provide
financing and leasing capital, letters of credit and guarantees. Standby letters
of credit  obligate  CIT to pay the  beneficiary  of the letter of credit in the
event that a CIT  client to which the letter of credit was issued  does not meet
its related obligation to the beneficiary.  These financial instruments generate
fees and involve,  to varying degrees,  elements of credit risk in excess of the
amounts  recognized in the consolidated  balance sheets.  To minimize  potential
credit risk, CIT generally requires  collateral and other  credit-related  terms
and conditions  from the customer.  At the time  credit-related  commitments are
granted,  the fair value of the underlying  collateral and guarantees  typically
approximates or exceeds the contractual amount of the commitment. In the event a
customer defaults on the underlying transaction, the maximum potential loss will
generally be limited to the contractual amount outstanding less the value of all
underlying collateral and guarantees.

      Guarantees  are issued  primarily  in  conjunction  with  CIT's  factoring
product,  whereby CIT provides the client with credit  protection  for its trade
receivables  without actually  purchasing the  receivables.  The trade terms are
generally  sixty days or less.  In the event that the  customer is unable to pay
according to the contractual terms, then the receivables would be purchased.  As
of December 31, 2004,  there were no outstanding  liabilities  relating to these
credit-related  commitments or guarantees,  as amounts are generally  billed and
collected on a monthly basis.

      CIT has entered into aerospace commitments to purchase commercial aircraft
from both  Airbus  Industrie  and The Boeing  Company.  The  commitment  amounts
detailed in the table are based on appraised  values,  actual  amounts will vary
based upon market  factors at the time of delivery.  The  remaining  units to be
purchased  are 43, with 18 to be completed  in 2005.  Lease  commitments  are in
place for  fourteen of the eighteen  units to be  delivered  in 2005.  The order
amount excludes CIT's options to purchase additional aircraft.


                                       86


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Outstanding  commitments to purchase  equipment to be leased to customers,
other than the aircraft  detailed  above,  relates  primarily to rail equipment.
Additionally, CIT is party to railcar sale-leaseback transactions under which it
is  obligated  to pay a remaining  total of $495.4  million,  approximately  $31
million per year through 2010 and declining  thereafter  through 2024,  which is
more than offset by CIT's  re-lease of the assets,  contingent on its ability to
maintain railcar usage. In conjunction with this sale-leaseback transaction, CIT
has guaranteed all obligations of the related consolidated lessee entity.

      CIT has guaranteed  the public and private debt  securities of a number of
its wholly-owned,  consolidated subsidiaries,  including those disclosed in Note
25 -- Summarized Financial Information of Subsidiaries.  In the normal course of
business,  various  consolidated CIT subsidiaries have entered into other credit
agreements and certain derivative  transactions with financial institutions that
are  guaranteed  by  CIT.  These   transactions  are  generally  used  by  CIT's
subsidiaries  outside of the U.S. to allow the local  subsidiary to borrow funds
in local currencies.

Note 18 -- Lease Commitments

      The following table presents  future minimum rentals under  noncancellable
long-term lease agreements for premises and equipment at December 31, 2004 ($ in
millions).

Years Ended December 31,                                                 Amount
------------------------                                                 ------
      2005...........................................................    $ 46.7
      2006...........................................................      38.5
      2007...........................................................      30.5
      2008...........................................................      25.5
      2009...........................................................       5.0
      Thereafter.....................................................       3.6
                                                                         ------
      Total..........................................................    $149.8
                                                                         ======

      In addition to fixed lease rentals,  leases  generally  require payment of
maintenance  expenses and real estate  taxes,  both of which are subject to rent
escalation  provisions.  Minimum  payments  have not  been  reduced  by  minimum
sublease  rentals  of  $32.1  million  due in the  future  under  noncancellable
subleases.

      Rental expense,  net of sublease income on premises and equipment,  was as
follows ($ in millions).

                                                        Three
                          Year Ended    Year Ended   Months Ended   Year Ended
                         December 31,  December 31,  December 31,  September 30,
                             2004          2003          2002          2002
                         ------------  ------------  ------------  -------------
Premises...............      $31.8        $34.0        $ 9.2         $38.4
Equipment..............        8.4          9.3          2.1           8.4
Less sublease income...       (9.1)        (9.4)        (1.8)         (9.0)
                             -----        -----        -----         -----
Total..................      $31.1        $33.9        $ 9.5         $37.8
                             =====        =====        =====         =====

Note 19 -- Fair Values of Financial Instruments

      SFAS No.  107  "Disclosures  About Fair  Value of  Financial  Instruments"
requires disclosure of the estimated fair value of CIT's financial  instruments,
excluding  leasing  transactions  accounted  for under  SFAS 13.  The fair value
estimates  are  made at a  discrete  point  in time  based  on  relevant  market
information and information  about the financial  instrument,  assuming adequate
market liquidity. Because no established trading market exists for a significant
portion  of CIT's  financial  instruments,  fair  value  estimates  are based on
judgments   regarding   future  expected  loss   experience,   current  economic
conditions,  risk  characteristics of various financial  instruments,  and other
factors. These estimates are subjective in nature,  involving  uncertainties and
matters of  significant  judgment  and,  therefore,  cannot be  determined  with
precision. Changes in assumptions or estimation methods may significantly affect
the estimated fair values. Because of these limitations,  management provides no
assurance that the estimated fair values presented would necessarily be realized
upon disposition or sale.


                                       87


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Actual fair values in the  marketplace  are affected by other  significant
factors,  such as supply and demand,  investment  trends and the  motivations of
buyers  and  sellers,  which  are  not  considered  in the  methodology  used to
determine the estimated fair values presented. In addition, fair value estimates
are based on existing financial  instruments  without attempting to estimate the
value of future  business  transactions  and the value of assets and liabilities
that  are  part  of  CIT's  overall  value  but  are  not  considered  financial
instruments.   Significant  assets  and  liabilities  that  are  not  considered
financial instruments include customer base, operating lease equipment, premises
and  equipment,  assets  received in  satisfaction  of loans,  and  deferred tax
balances.  In addition,  tax effects relating to the unrealized gains and losses
(differences  in  estimated  fair  values  and  carrying  values)  have not been
considered in these  estimates  and can have a significant  effect on fair value
estimates.  The carrying amounts for cash and cash equivalents  approximate fair
value because they have short maturities and do not present  significant  credit
risks.  Credit-related  commitments, as disclosed in Note 17 -- "Commitments and
Contingencies", are primarily short-term floating-rate contracts whose terms and
conditions are individually negotiated, taking into account the creditworthiness
of the customer and the nature,  accessibility and quality of the collateral and
guarantees.   Therefore,  the  fair  value  of  credit-related  commitments,  if
exercised, would approximate their contractual amounts.

      Estimated fair values,  recorded  carrying values and various  assumptions
used in valuing CIT's financial instruments are set forth below ($ in millions).




                                                                 December 31, 2004         December 31, 2003
                                                                 Asset/(Liability)         Asset/(Liability)
                                                              ----------------------     ----------------------
                                                              Carrying     Estimated     Carrying    Estimated
                                                                Value     Fair Value       Value    Fair Value
                                                              --------    ----------     --------   ----------
                                                                                         
Finance receivables-loans(1)..............................    $27,080.8     $27,186.5    $24,620.1   $24,711.3
Finance receivables-held for sale.........................      1,640.8       1,640.8        918.3       918.3
Retained interest in securitizations and
   other investments(2)...................................      1,228.2       1,228.2      1,380.8     1,380.8
Other assets(3)...........................................      1,133.5       1,133.5      1,287.8     1,287.8
Commercial paper(4).......................................     (4,210.9)     (4,210.9)    (4,173.9)   (4,173.9)
Variable-rate senior notes (including accrued
   interest payable)(5)...................................    (11,576.2)    (11,635.3)    (9,428.9)   (9,440.5)
Fixed-rate senior notes (including accrued
   interest payable)(5)...................................    (22,037.2)    (22,659.1)   (20,123.7)  (21,060.9)
Preferred capital securities (including accrued
   interest payable)(6)...................................       (261.3)       (280.3)      (263.0)     (286.4)
Credit balances of factoring clients and other
   liabilities(7)                                               6,025.1       6,025.1     (6,318.7)   (6,318.7)
Derivative financial instruments(8):
   Interest rate swaps, net...............................        (17.2)        (17.2)       (36.1)      (36.1)
   Cross-currency swaps, net..............................        369.9         369.9        254.3       254.3
   Foreign exchange forwards, net.........................       (161.8)       (161.8)      (216.0)     (216.0)
   Credit default swaps, net..............................          5.4           5.4           --           --
   Treasury locks.........................................          0.2           0.2           --           --

--------------------------------------------------------------------------------
(1)   The fair value of performing  fixed-rate  loans was estimated based upon a
      present value  discounted  cash flow  analysis,  using interest rates that
      were being  offered at the end of the year for loans with similar terms to
      borrowers of similar  credit  quality.  Discount rates used in the present
      value  calculation  range from 3.90% to 8.65% for  December  31,  2004 and
      4.63% to 7.36% for December 31, 2003.  The  maturities  used represent the
      average contractual maturities adjusted for prepayments. For floating-rate
      loans that reprice  frequently  and have no  significant  change in credit
      quality, fair value approximates carrying value. The net carrying value of
      lease finance  receivables  not subject to fair value  disclosure  totaled
      $7.4 billion at December 31, 2004 and $6.0 billion at December 31, 2003.
(2)   Fair  values of  retained  interests  in  securitizations  are  calculated
      utilizing  current and anticipated  credit losses,  prepayment  speeds and
      discount rates. Other investment securities actively traded in a secondary
      market were valued using quoted available market prices.
(3)   Other assets subject to fair value  disclosure  include  accrued  interest
      receivable,  certain investment securities and miscellaneous other assets.
      The  carrying  amount of accrued  interest  receivable  approximates  fair
      value.  The  carrying  value of other  assets  not  subject  to fair value
      disclosure  totaled  $1.6 billion at December 31, 2004 and $2.0 billion at
      December 31, 2003.
(4)   The estimated fair value of commercial paper  approximates  carrying value
      due to the relatively short maturities.
(5)   The  difference  between the carrying  value of  fixed-rate  senior notes,
      variable  rate  senior  notes and  preferred  capital  securities  and the
      corresponding  balances  reflected in the  consolidated  balance sheets is
      accrued  interest  payable.  These  amounts  are  excluded  from the other
      liabilities  balances in this table.  Fixed-rate notes were valued using a
      present  value   discounted  cash  flow  analysis  with  a  discount  rate
      approximating  current  market rates for  issuances by CIT of similar term
      debt at the end of the year.  Discount  rates  used in the  present  value
      calculation  ranged from 2.74% to 6.03% at December  31, 2004 and 1.54% to
      6.32% at December 31, 2003.
(6)   Preferred capital  securities were valued using a present value discounted
      cash flow analysis with a discount rate approximating current market rates
      of similar issuances at the end of the year.
(7)   The  estimated  fair  value  of  credit  balances  of  factoring   clients
      approximates  carrying value due to their short  settlement  terms.  Other
      liabilities include accrued liabilities and deferred federal income taxes.
      Accrued  liabilities  and  payables  with  no  stated  maturities  have an
      estimated fair value that approximates  carrying value. The carrying value
      of other  liabilities  not subject to fair value  disclosure  totaled $0.9
      billion and $0.6 billion December 31, 2004 and 2003, respectively.
(8)   CIT enters into  derivative  financial  instruments  for hedging  economic
      exposures only. The estimated fair values are calculated  internally using
      market  data  and  represent  the net  amount  receivable  or  payable  to
      terminate the agreement,  taking into account  current  market rates.  See
      Note  9 --  "Derivative  Financial  Instruments"  for  notional  principal
      amounts associated with the instruments.


                                       88


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 20 -- Certain Relationships and Related Transactions

      CIT is a partner with Dell Inc.  ("Dell") in Dell Financial  Services L.P.
("DFS"),  a joint venture that offers financing to Dell's  customers.  The joint
venture  provides  Dell  with  financing  and  leasing   capabilities  that  are
complementary to its product  offerings and provides CIT with a steady source of
new  financings.  In 2004,  CIT and Dell agreed to extend the current  agreement
beyond October 2005 and to modify certain contractual terms of the relationship.
The new  agreements  provide Dell with the option to purchase CIT's 30% interest
in DFS in February 2008 based on a formula tied to DFS  profitability,  within a
range of $100 million to $345  million.  CIT has the right to purchase a minimum
percentage of DFS's finance  receivables  on a declining  scale through  January
2010.

      CIT  regularly  purchases  finance  receivables  from  DFS  at a  premium,
portions of which are typically securitized within 90 days of purchase from DFS.
CIT has limited recourse to DFS on defaulted  contracts.  In accordance with the
joint venture  agreement,  net income and losses  generated by DFS as determined
under GAAP are  allocated 70% to Dell and 30% to CIT. The DFS board of directors
voting  representation  is equally weighted  between  designees of CIT and Dell,
with one  independent  director.  DFS is not  consolidated  in  CIT's  financial
statements  and is accounted for under the equity  method.  At December 31, 2004
and 2003,  financing and leasing assets related to the DFS program  (included in
the CIT  Consolidated  Balance  Sheet) were $2.0 billion and $1.4  billion,  and
securitized assets included in managed assets were $2.5 billion at both periods.
In  addition  to the owned  and  securitized  assets  acquired  from DFS,  CIT's
investment in and loans to the joint venture were approximately $267 million and
$205 million at December 31, 2004 and 2003.

      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.  The
agreement  with Snap-on  extends until  January  2006.  CIT and Snap-on have 50%
ownership interests,  50% board of directors'  representation,  and share income
and losses equally.  The Snap-on joint venture is accounted for under the equity
method and is not consolidated in CIT's financial  statements.  At both December
31, 2004 and 2003,  the related  financing  and leasing  assets and  securitized
assets were $1.1  billion  and $0.1  billion,  respectively.  In addition to the
owned and  securitized  assets  purchased from the Snap-on joint venture,  CIT's
investment in and loans to the joint venture were  approximately $16 million and
$17 million at both  December  31, 2004 and 2003.  Both the Snap-on and the Dell
joint venture arrangements were acquired in a 1999 acquisition.

      Since December  2000,  CIT has been a joint venture  partner with Canadian
Imperial Bank of Commerce  ("CIBC") in an entity that is engaged in  asset-based
lending in Canada.  Both CIT and CIBC have a 50% ownership interest in the joint
venture, and share income and losses equally. This entity is not consolidated in
CIT's financial  statements and is accounted for under the equity method.  As of
December 31, 2004 and 2003,  CIT's  investment in and loans to the joint venture
were $191 million and $119 million.

      CIT  invests  in  various  trusts,  partnerships,  and  limited  liability
corporations  established in conjunction with structured financing  transactions
of equipment,  power and infrastructure  projects. CIT's interests in certain of
these  entities  were  acquired  by  CIT  in  November  1999,  and  others  were
subsequently entered into in the normal course of business. At December 31, 2004
and 2003,  other assets  included $19 million and $21 million of  investments in
non-consolidated  entities  relating to such transactions that are accounted for
under the equity or cost methods.

      Certain shareholders of CIT provide investment  management services in the
normal course of business in conjunction with CIT's employee benefit plans.

Note 21 -- Business Segment Information

Management's Policy in Identifying Reportable Segments

      CIT's  reportable  segments  are  comprised of  strategic  business  units
aggregated  into segments based upon the core  competencies  relating to product
origination,  distribution methods,  operations and servicing, and the nature of
their  regulatory  environment.  This segment  reporting is consistent  with the
presentation to management.


                                       89


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      Segment  reporting  was modified in two ways in 2004.  First,  in order to
better align with the market place and improve efficiency, the former Structured
Finance  segment  was  merged  with  Capital  Finance,  and at the same time the
telecommunications  and media portfolio was moved to the Business Credit unit of
Commercial Finance. Secondly, the Specialty Finance -- consumer unit, consisting
primarily  of home  lending  and other loans to  consumers,  was broken out as a
separate  segment.  All prior  periods have been  conformed to these changes and
this updated  presentation is consistent with the reporting to management during
2004.

      Segment  reporting was modified,  beginning in the quarter ended March 31,
2003, to reflect  Equipment  Finance and Capital  Finance as separate  segments.
Prior  periods  have been  restated  to  conform to this  current  presentation.
Previously,  these two strategic  business  units were combined as the Equipment
Financing  and  Leasing  segment.  This  new  presentation  is  consistent  with
reporting to management.

Types of Products and Services

      CIT  has  five  reportable  segments:  Specialty  Finance  --  commercial,
Specialty Finance -- consumer, Commercial Finance, Equipment Finance and Capital
Finance.  These segments,  other than Commercial Finance,  offer secured lending
and  leasing  products  to  midsize  and  larger  companies  across a variety of
industries,  including  aerospace,  construction,  rail, machine tool,  business
aircraft, technology,  manufacturing and transportation.  The Commercial Finance
segment  offers  secured  lending and  receivables  collection  as well as other
financial  products  to small  and  midsize  companies.  These  include  secured
revolving lines of credit and term loans, credit protection, accounts receivable
collection, import and export financing and factoring,  debtor-in-possession and
turnaround  financing.  The Specialty  Finance -- consumer  segment  offers home
lending  products  to  consumers  primarily  through a network  of  brokers  and
correspondents.

Segment Profit and Assets

      Because CIT  generates a majority of its revenue from  interest,  fees and
asset sales,  management  relies  primarily on operating  revenues to assess the
performance of a segment. CIT also evaluates segment performance based on profit
after income taxes,  as well as asset growth,  credit risk  management and other
factors.

      Total  segment  returns were  improved in 2004 in  comparison  to 2003 and
included  rebounds in Capital Finance and Equipment  Finance from  disappointing
2003  results.  Corporate  and  Other for 2004  included  the  reduction  to the
specific telecommunications reserve for credit losses and the first quarter gain
on the call of debt.

      The business segments' operating margins and net income for the year ended
December  31,  2003  include  the  allocation  (from  Corporate  and  Other)  of
additional  borrowing  costs stemming from the 2002  disruption to the Company's
funding base and increased  liquidity  levels.  These  additional  borrowing and
liquidity  costs had a greater  impact in 2003 than in 2002 and were included in
Corporate  and  Other in 2002.  Also,  for the year  ended  December  31,  2003,
Corporate and Other included an after-tax charge of $38.4 million related to the
write-down of equity  investments,  an after-tax benefit of $30.8 million from a
gain on a call of debt as well as unallocated expenses. During 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.

      The Corporate and Other segment  included the following  items in the year
ended  September  30, 2002:  (1) goodwill  impairment of $6,511.7  million,  (2)
provision for  telecommunications  of $200.0 million ($124.0 million after tax),
(3) Argentine provision of $135.0 million ($83.7 million after tax), (4) funding
costs of $85.9 million ($53.2 million after tax), and (5) unallocated  corporate
operating  items  totaling $7.2 million  pre-tax  (income) or $3.9 million after
tax.  For all periods  shown,  Corporate  and Other  includes the results of the
venture capital business.


                                       90


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      The  following  table  presents  reportable  segment  information  and the
reconciliation  of segment  balances  to the  consolidated  financial  statement
totals and the consolidated  managed assets. 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. ($ in millions)




                           Specialty  Specialty                                                Corporate
                            Finance    Finance    Commercial Equipment  Capital     Total         and
                          Commercial  Consumer      Finance   Finance   Finance   Segments       Other   Consolidated
                          ----------  --------      -------   -------   -------   --------       -----   ------------
                                                                                    
At or for the year ended
December 31, 2004
Operating margin.......   $  792.4    $  147.6     $   673.8  $  219.4   $ 287.6   $ 2,120.8   $   121.7    $ 2,242.5
Income taxes...........      158.9        31.8         183.4      49.5      57.9       481.5         1.7        483.2
Net income (loss)......      268.3        48.9         295.5      77.7     105.0       795.4       (41.8)       753.6
Total financing and
  leasing assets.......   11,172.8     5,374.5      11,780.4   6,924.4   9,908.8    45,160.9          --     45,160.9
Total managed assets...   15,338.3     6,603.2      11,780.4   9,839.9   9,908.8    53,470.6          --     53,470.6
At or for the year ended
December 31, 2003
Operating margin.......   $  721.9    $  120.6     $   578.8  $  148.0   $ 214.4   $ 1,783.7   $    16.1    $ 1,799.8
Income taxes...........      146.8        20.0         156.8      24.6      46.4       394.6       (29.6)       365.0
Net income (loss)......      225.3        35.6         245.0      38.5      72.6       617.0       (50.1)       566.9
Total financing and
  leasing assets.......    9,504.1     2,814.3      11,572.9   6,957.7   9,234.9    40,083.9           --    40,083.9
Total managed assets...   14,062.0     4,681.9      11,572.9  10,183.9   9,234.9    49,735.6           --    49,735.6
At or for the three months
ended December 31, 2002
Operating margin.......   $  189.3    $   27.5     $   163.0  $   64.7    $ 67.0   $   511.5   $   (42.9)   $   468.6
Income taxes...........       41.5         5.6          45.4       8.7      18.5       119.7       (27.7)        92.0
Net income (loss)......       64.9         8.8          71.0      13.4      29.1       187.2       (45.9)       141.3
Total financing and
  leasing assets.......    9,024.1     1,292.7       9,305.2   8,145.2   8,107.5    35,874.7          --     35,874.7
Total managed assets...   13,356.7     3,506.3       9,305.2  12,081.4   8,107.5    46,357.1          --     46,357.1
At or for the year ended
September 30, 2002
Operating margin.......   $  754.0    $  178.1     $   532.4  $  378.7   $ 260.2   $ 2,103.4   $  (322.3)   $ 1,781.1
Income taxes...........      166.4        48.0         140.1      74.3      71.4       500.2      (126.2)       374.0
Net income (loss)......      271.6        78.2         228.5     121.1     116.5       815.9    (7,514.6)    (6,698.7)
Total financing and
  leasing assets.......    8,805.2     1,314.2      10,079.9   8,398.8   7,789.5    36,387.6           --    36,387.6
Total managed assets...   13,539.9     3,430.1      10,079.9  12,782.9   7,789.5    47,622.3           --    47,622.3


      Finance  income  and other  revenues  derived  from  United  States  based
financing and leasing assets were $3,864.4  million,  $3,695.2  million,  $977.1
million,  and $4,284.8  million for the years ended  December 31, 2004 and 2003,
the three months ended December 31, 2002, and the year ended September 30, 2002,
respectively.  Finance  income and other  revenues  derived from  foreign  based
financing  and leasing  assets,  were $850.2  million,  $944.0  million,  $251.7
million,  and $990.3 million for the years ended December 31, 2004 and 2003, the
three months ended  December 31, 2002,  and the year ended  September  30, 2002,
respectively.

Note 22 -- Legal Proceedings

Putative Securities Class Action

      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 former  Chief  Executive
Officer and its Chief Financial Officer. The lawsuit contained  allegations that
the registration  statement and prospectus prepared and filed in connection with
CIT's 2002 initial public offering ("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  purported to have been brought on
behalf of all those who  purchased  CIT common stock in or traceable to the IPO,
and sought,  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.


                                       91


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

      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 one of which named as  defendants
some of the  underwriters  in the  IPO  and  certain  former  directors  of CIT.
Glickenhaus & Co., a privately held investment firm, was named lead plaintiff in
the  consolidated  action.  On September 16, 2003,  an amended and  consolidated
complaint was filed. That complaint contained substantially the same allegations
as the original complaints. In addition to the foregoing, two similar suits (the
"Derivative  Suits")  were  brought  by  certain  shareholders  on behalf of CIT
against  CIT  and  some of its  present  and  former  directors  under  Delaware
corporate law.

      On December 28, 2004,  the United States  District  Court entered an order
granting CIT's motion to dismiss the consolidated  case. The plaintiff's time to
appeal that order  expired on January  28, 2005 with no notice of appeal  having
been filed. The cases against all parties,  including the Derivative Suits, have
been dismissed.

NorVergence Related Litigation

      On  September  9,  2004,  Exquisite  Caterers  v.  Popular  Leasing et al.
("Exquisite  Caterers"),  a putative national class action, was filed against 13
financial  institutions,  including  CIT,  who  had  acquired  equipment  leases
("NorVergence Leases") from NorVergence,  Inc., a reseller of telecommunications
and Internet  services to  businesses.  The  Exquisite  Caterers  lawsuit is now
pending in the Superior Court of New Jersey, Monmouth County. Exquisite Caterers
based  its  complaint  on  allegations  that  NorVergence   misrepresented   the
capabilities  of the equipment  leased to its customers and  overcharged for the
equipment.  The complaint asserts that the NorVergence  Leases are unenforceable
and seeks rescission,  punitive damages,  treble damages and attorneys' fees. In
addition,  putative class action suits in Florida, Illinois, New York, and Texas
and  several  individual  suits,  all based upon the same core  allegations  and
seeking the same relief,  have been filed by NorVergence  customers  against CIT
and other financial institutions.

      On July 14, 2004, the U.S.  Bankruptcy  Court ordered the  liquidation for
NorVergence  under Chapter 7 of the Bankruptcy Code.  Thereafter,  the Attorneys
General of Florida,  New Jersey,  New York,  Illinois,  Massachusetts  and Texas
commenced   investigations  of  NorVergence  and  the  financial   institutions,
including CIT, which purchased  NorVergence  Leases. CIT entered into settlement
negotiations  with those  Attorney  Generals  and with  Attorneys  General  from
several other states,  including  Pennsylvania  and  Massachusetts.  In December
2004,  CIT  reached  separate  settlements  with the New York and the New Jersey
Attorneys General. Under those settlements, lessees in those states will have an
opportunity  to resolve all claims by and against CIT by paying a percentage  of
the remaining balance on their lease.  Negotiations with other Attorneys General
are  continuing.  CIT has also been asked by the  Federal  Trade  Commission  to
produce  documents for  transactions  related to  NorVergence.  In addition,  on
February  15, 2005,  CIT was served with a subpoena  seeking the  production  of
documents in a grand jury proceeding  being  conducted by the U.S.  Attorney for
the  Southern  District  of New  York in  connection  with an  investigation  of
transactions  related to  NorVergence.  CIT is in the process of complying  with
these information requests.

Other Litigation

      In addition,  there are various legal proceedings  against CIT, which have
arisen in the  ordinary  course of  business.  While the  outcomes  of the above
mentioned and ordinary course legal  proceedings and the related  activities are
not certain, based on present assessments, management does not believe that they
will have a material adverse effect on the financial condition of CIT.

Note 23 -- Goodwill and Intangible Assets

      Goodwill and  intangible  assets totaled $596.5 million and $487.7 million
at December 31, 2004 and 2003,  respectively.  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"


                                       92


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

("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,  CIT's  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,  which caused a disruption  in the  Company's  ability to access
capital markets. As a result,  management  performed  impairment analyses during
the quarters ended March 31, 2002 and June 30, 2002. These analyses  resulted in
goodwill  impairment  charges  of $4.513  billion  and  $1.999  billion  for the
quarters  ended  March  31,  2002 and June 30,  2002,  respectively.  Management
performed a goodwill  impairment analysis as of October 1, 2004, which indicated
that the fair value of goodwill was in excess of the carrying value.  Therefore,
additional impairment charges were not necessary.

      The  following  table  summarizes  goodwill  balances  by  segment  ($  in
millions):

                                           Specialty
                                           Finance --    Commercial
                                           commercial      Finance       Total
                                           ----------      -------       -----
Balance at December 31, 2002............      $14.0        $370.4       $384.4
Severance reduction.....................       (1.3)           --         (1.3)
                                              -----        ------       ------
Balance at December 31, 2003............       12.7         370.4        383.1
Acquisitions ...........................       49.6            --         49.6
                                              -----        ------       ------
Balance at December 31, 2004............      $62.3        $370.4       $432.7
                                              =====        ======       ======

      The increase in Specialty  Finance goodwill during 2004 was largely due to
the  Western  European  vendor  finance and leasing  business  acquisition.  The
downward revision to severance  liabilities during 2003 was related to Specialty
Finance restructuring activities and was recorded as a reduction to goodwill, as
the severance  liability was  established in conjunction  with Tyco  acquisition
purchase accounting adjustments.

      Other intangible assets, net are comprised  primarily of acquired customer
relationships,  proprietary computer software and related transaction processes,
and are included in Goodwill and Intangible  Assets on the Consolidated  Balance
Sheets.  The following  table  summarizes  intangible  assets  balances,  net by
segment ($ in millions):

                                           Specialty
                                           Finance --    Commercial
                                           commercial      Finance       Total
                                           ----------      -------       -----
Balance at December 31, 2002...........      $  --         $ 16.5       $ 16.5
Additions..............................         --           93.0         93.0
Amortization...........................         --           (4.9)        (4.9)
                                             -----         ------       ------
Balance at December 31, 2003...........         --          104.6        104.6
Additions..............................       72.1            0.4         72.5
Amortization...........................       (4.1)          (9.2)       (13.3)
                                             -----         ------       ------
Balance at December 31, 2004...........      $68.0         $ 95.8       $163.8
                                             =====         ======       ======

      The increase in other intangible  assets during the 2004 was due primarily
to customer  relationships  acquired in the Western  European vendor finance and
leasing business acquisition and in a purchase of a technology leasing business.
The  increase  during  2003 was due to  customer  relationships  acquired in the
purchase of two factoring businesses.

      Other  intangible  assets are being  amortized  over  their  corresponding
respective  lives  ranging  from five to twenty  years in  relation  to  revenue
streams where  applicable.  Accumulated  amortization  totaled $23.7 million and
$10.4  million  at  December  31,  2004 and 2003,  respectively.  The  projected
amortization for the years ended December 31, 2005 through December 31, 2009 is:
$20.8 million for 2005;  $19.7 million for 2006; and $16.4 million for 2007, and
$16.3 million each for 2008 and 2009.


                                       93


                         CIT GROUP INC. AND SUBSIDIARIES

       NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 24 -- Severance and Facility Restructuring Reserves

      The following table summarizes previously  established purchase accounting
liabilities  (pre-tax) related to severance of employees and closing facilities,
as well as 2004 restructuring activities ($ in millions):




                                                      Severance                  Facilities
                                                ----------------------     ----------------------
                                                Number of                   Number of                   Total
                                                Employees      Reserve     Facilities     Reserve     Reserves
                                                ---------      -------     ----------     -------     --------
                                                                                       
Balance December 31, 2003...................         43         $ 2.3           12        $ 7.2       $  9.5
2004 additions..............................        175          15.2            6          4.5         19.7
2004 utilization............................        (89)         (5.3)          (3)        (6.0)       (11.3)
                                                    ---         -----           --        -----       ------
Balance December 31, 2004...................        129         $12.2           15        $ 5.7       $ 17.9
                                                    ===         =====           ==        =====       ======


      The reserves as of December 31, 2003 relate  largely to the  restructuring
of the European  operations and include  amounts payable within the next year to
individuals who chose to receive  payments on a periodic basis and shortfalls in
sublease  transactions,  which will be utilized over the remaining  lease terms,
generally 5 years.

      The additions to restructuring reserves in 2004 relate to two initiatives:
(1) the second quarter combination of the former Structured Finance with Capital
Finance and a back office restructuring in Commercial Finance ($4.1 million) and
(2) the third  quarter  acquisition  of a Western  European  vendor  finance and
leasing  business  ($15.6  million).   Costs  related  to  the  Capital  Finance
combination  were  included  in current  period  earnings,  while  restructuring
liabilities related to the vendor finance and leasing business  acquisition were
established under purchase accounting in conjunction with fair value adjustments
to purchased assets and liabilities.


                                       94


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


Note 25 -- Summarized Financial Information of Subsidiaries (Unaudited)

      The following presents condensed  consolidating  financial information for
CIT Holdings LLC and its wholly-owned  subsidiary,  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.  Therefore,  CIT has not presented  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
             --------------              ----------  -----------  --------  ------------ ------------     -----
                                                                                     
December 31, 2004
ASSETS
Net finance receivables ............   $   1,121.1  $  3,129.8  $  1,682.7  $  28,497.4  $       --    $  34,431.0
Operating lease equipment, net .....            --       517.9       130.8      7,642.2          --        8,290.9
Finance receivables held for sale ..            --       122.4        72.0      1,446.4          --        1,640.8
Cash and cash equivalents ..........       1,311.4       670.8       127.5        100.5          --        2,210.2
Other assets .......................       9.536.8      (278.9)      316.2      1,019.4    (6,055.1)       4,538.4
                                       -----------  ----------  ----------  -----------  ----------    -----------
  Total Assets .....................   $  11,969.3  $  4,162.0  $  2,329.2  $  38,705.9  $ (6,055.1)   $  51,111.3
                                       ===========  ==========  ==========  ===========  ==========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Debt ...............................   $  34,699.1  $    487.8  $  1,383.8  $   1,154.1  $       --    $  37,724.8
Credit balances of factoring clients            --          --          --      3,847.3          --        3,847.3
Accrued liabilities and payables ...     (28,784.9)    3,184.5      (591.3)    29,635.4          --        3,443.7
                                       -----------  ----------  ----------  -----------  ----------    -----------
   Total Liabilities ...............       5,914.2     3,672.3       792.5     34,636.8          --       45,015.8
Minority interest ..................            --          --          --         40.4          --           40.4
Total Stockholders' Equity .........       6,055.1       489.7     1,536.7      4,028.7    (6,055.1)       6,055.1
                                       -----------  ----------  ----------  -----------  ----------    -----------
  Total Liabilities and
  Stockholders' Equity .............   $  11,969.3  $  4,162.0  $  2,329.2  $  38,705.9  $ (6,055.1)   $  51,111.3
                                       ===========  ==========  ==========  ===========  ==========    ===========
December 31, 2003
ASSETS

Net finance receivables ............   $   1,581.3  $  3,755.4  $  1,208.8  $  24,111.0  $       --    $  30,656.5
Operating lease equipment, net .....            --       580.3       146.4      6,888.8          --        7,615.5
Finance receivables held for sale ..            --        80.0       163.8        674.5          --          918.3
Cash and cash equivalents ..........       1,479.9       410.6       227.5       (144.3)         --        1,973.7
Other assets .......................       8,973.6       198.0       174.1      1,227.3    (5,394.2)       5,178.8
                                       -----------  ----------  ----------  -----------  ----------    -----------
  Total Assets .....................   $  12,034.8  $  5,024.3  $  1,920.6  $  32,757.3  $ (5,394.2)   $  46,342.8
                                       ===========  ==========  ==========  ===========  ==========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Debt ...............................   $  30,551.8  $  1,003.5  $  1,206.1  $     907.2  $       --    $  33,668.6
Credit balances of factoring clients            --          --          --      3,894.6          --        3,894.6
Accrued liabilities and payables ...     (23,911.2)    3,429.8      (631.8)    24,459.6          --        3,346.4
                                       -----------  ----------  ----------  -----------  ----------    -----------
  Total Liabilities ................       6,640.6     4,433.3       574.3     29,261.4          --       40,909.6
Minority interest ..................            --          --          --         39.0          --           39.0
Total Stockholders' Equity .........       5,394.2       591.0     1,346.3      3,456.9    (5,394.2)       5,394.2
                                       -----------  ----------  ----------  -----------  ----------    -----------
  Total Liabilities and
  Stockholders' Equity .............   $  12,034.8  $  5,024.3  $  1,920.6  $  32,757.3  $ (5,394.2)   $  46,342.8
                                       ===========  ==========  ==========  ===========  ==========    ===========



                                       95


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




                                                                      CIT
              CONSOLIDATING                  CIT        Capita      Holdings     Other
          STATEMENTS OF INCOME             Group Inc.  Corporation    LLC     Subsidiaries  Eliminations    Total
          --------------------             ----------  -----------  --------  ------------  ------------    -----
                                                                                        
Year Ended December 31, 2004
Finance income .....................       $   38.3     $  703.0    $ 187.5     $2,856.9     $    --       $3,785.7
Interest expense ...................         (150.3)       582.2       10.9        817.3          --        1,260.1
                                           --------     --------    -------     --------     -------       --------
Net finance income .................          188.6        120.8      176.6      2,039.6          --        2,525.6
Depreciation on operating
  lease equipment ..................             --        305.7       43.8        606.5          --          956.0
                                           --------     --------    -------     --------     -------       --------
Net finance margin .................          188.6       (184.9)     132.8      1,433.1          --        1,569.6
Provision for credit losses ........           27.5         46.5       12.0        128.2          --          214.2
                                           --------     --------    -------     --------     -------       --------
Net finance margin, after provision
  for credit losses ................          161.1       (231.4)     120.8      1,304.9          --        1,355.4
Equity in net income of subsidiaries          691.7           --         --           --      (691.7)            --
Other revenue ......................          107.4         68.2       86.9        628.1          --          890.6
Loss on venture capital investments              --           --         --         (3.5)         --           (3.5)
                                           --------     --------    -------     --------     -------       --------
Operating margin ...................          960.2       (163.2)     207.7      1,929.5      (691.7)       2,242.5
Operating expenses .................          167.1         71.7       67.7        739.9          --        1,046.4
Gain on redemption of debt .........             --           --                    41.8          --           41.8
                                           --------     --------    -------     --------     -------       --------
Income (loss) before provision for
  income taxes .....................          793.1       (234.9)     140.0      1,231.4      (691.7)       1,237.9
Provision for income taxes .........          (39.5)        91.1      (54.6)      (480.2)         --         (483.2)
Minority interest, after tax .......             --           --         --         (1.1)         --           (1.1)
                                           --------     --------    -------     --------     -------       --------
Net income (loss)...................       $  753.6     $ (143.8) $    85.4     $  750.1     $(691.7)      $  753.6
                                           ========     ========    =======     ========     =======       ========

Year Ended December 31, 2003
Finance income .....................       $   89.0     $  785.3  $   195.0     $2,660.2     $    --       $3,729.5
Interest expense ...................          (23.3)       303.8        6.6      1,061.6          --        1,348.7
                                           --------     --------    -------     --------     -------       --------
Net finance income .................          112.3        481.5      188.4      1,598.6          --        2,380.8
Depreciation on operating
  lease equipment ..................             --        371.6       68.5        612.9          --        1,053.0
                                           --------     --------    -------     --------     -------       --------
Net finance margin .................          112.3        109.9      119.9        985.7          --        1,327.8
Provision for credit losses ........           36.7         53.1       14.6        282.9          --          387.3
                                           --------     --------    -------     --------     -------       --------
Net finance margin, after provision
  for credit losses ................           75.6         56.8      105.3        702.8          --          940.5
Equity in net income of subsidiaries          481.3           --         --           --      (481.3)            --
Other revenue ......................           60.4        124.8       95.7        666.7          --          947.6
Loss on venture capital investments              --           --         --        (88.3)         --          (88.3)
                                           --------     --------    -------     --------     -------       --------
Operating margin ...................          617.3        181.6      201.0      1,281.2      (481.3)       1,799.8
Operating expenses .................           28.0        168.9       90.3        625.7          --          912.9
Gain on redemption of debt .........             --           --         --         50.4          --           50.4
                                           --------     --------    -------     --------     -------       --------
Income before provision for
  income taxes .....................          589.3         12.7      110.7        705.9      (481.3)         937.3
Provision for income taxes .........          (22.4)        (5.0)     (43.2)      (294.4)         --         (365.0)
Dividends on preferred capital
  securities, after tax ............             --           --         --         (5.4)         --           (5.4)
                                           --------     --------    -------     --------     -------       --------
Net income .........................       $  566.9     $    7.7  $    67.5     $  406.1     $(481.3)      $  566.9
                                           ========     ========    =======     ========     =======       ========



                                       96


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




                                                                         CIT
              CONSOLIDATING                 CIT          Capita        Holdings     Other
          STATEMENTS OF INCOME            Group Inc.   Corporation       LLC     Subsidiaries  Eliminations    Total
          --------------------            ----------   -----------    --------   ------------  ------------    -----
                                                                                            
Three Months Ended December 31, 2002
Finance income .....................      $    32.9      $  224.5      $ 50.6     $   663.7      $     --     $   971.7
Interest expense ...................           33.4          73.9        (1.1)        243.3            --         349.5
                                          ---------      --------      ------     ---------      --------     ---------
Net finance income .................           (0.5)        150.6        51.7         420.4            --         622.2
Depreciation on operating
  lease equipment ..................             --         105.0        21.6         150.7            --         277.3
                                          ---------      --------      ------     ---------      --------     ---------
Net finance margin .................           (0.5)         45.6        30.1         269.7            --         344.9
Provision for credit losses ........           18.8           8.9         2.4         103.3            --         133.4
                                          ---------      --------      ------     ---------      --------     ---------
Net finance margin, after provision
  for credit losses ................          (19.3)         36.7        27.7         166.4            --         211.5
Equity in net income of subsidiaries          144.1            --          --            --        (144.1)           --
Other revenue ......................            4.1          46.1        23.5         189.8            --         263.5
Loss on venture capital investments              --            --          --          (6.4)           --          (6.4)
                                          ---------      --------      ------     ---------      --------     ---------
Operating margin ...................          128.9          82.8        51.2         349.8        (144.1)        468.6
Operating expenses .................            6.9          35.1        24.7         165.9            --         232.6
                                          ---------      --------      ------     ---------      --------     ---------
Income before provision for
  income taxes .....................          122.0          47.7        26.5         183.9        (144.1)        236.0
Provision for income taxes .........           19.3         (18.6)      (14.2)        (78.5)           --         (92.0)
Dividends on preferred capital
  securities, after tax ............             --            --          --          (2.7)           --          (2.7)
                                          ---------      --------      ------     ---------      --------     ---------
Net income .........................      $   141.3      $   29.1      $ 12.3     $   102.7      $ (144.1)    $   141.3
                                          =========      ========      ======     =========      ========     =========

Year Ended September 30, 2002
Finance income .....................      $   200.4      $1,050.1      $233.2     $ 2,859.1      $     --     $ 4,342.8
Interest expense ...................          (54.9)        401.3         4.8       1,113.5            --       1,464.7
                                          ---------      --------      ------     ---------      --------     ---------
Net finance income .................          255.3         648.8       228.4       1,745.6            --       2,878.1
Depreciation on operating
  lease equipment ..................             --         503.0       105.5         632.5            --       1,241.0
                                          ---------      --------      ------     ---------      --------     ---------
Net finance margin .................          255.3         145.8       122.9       1,113.1            --       1,637.1
Provision for credit losses ........          308.3         197.9        24.9         257.2            --         788.3
                                          ---------      --------      ------     ---------      --------     ---------
Net finance margin, after provision
  for credit losses ................          (53.0)        (52.1)       98.0         855.9            --         848.8
Equity in net income of subsidiaries          130.9            --          --            --        (130.9)           --
Other revenue ......................           20.7         124.0        93.0         734.9            --         972.6
Loss on venture capital investments              --            --          --         (40.3)           --         (40.3)
                                          ---------      --------      ------     ---------      --------     ---------
Operating margin ...................           98.6          71.9       191.0       1,550.5        (130.9)      1,781.1
Operating expenses .................        6,562.6         188.7        65.9       1,278.1            --       8,095.3
                                          ---------      --------      ------     ---------      --------     ---------
Gain on redemption of debt .........
Income (loss) before provision for
  income taxes .....................       (6,464.0)       (116.8)      125.1         272.4        (130.9)     (6,314.2)
Provision for income taxes .........         (234.7)         45.6       (48.8)       (136.1)           --        (374.0)
Dividends on preferred capital
  securities, after tax ............             --            --          --         (10.5)           --         (10.5)
                                          ---------      --------      ------     ---------      --------     ---------
Net income (loss) ..................      $(6,698.7)     $  (71.2)     $ 76.3     $   125.8      $ (130.9)    $(6,698.7)
                                          =========      ========      ======     =========      ========     =========



                                       97


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




                                                                             CIT
              CONSOLIDATING                       CIT        Capita        Holdings       Other
         STATEMENT OF CASH FLOWS              Group Inc.   Corporation       LLC      Subsidiaries  Eliminations        Total
         -----------------------              ----------   -----------       ---      ------------  ------------        -----
                                                                                                 
Year Ended December 31, 2004
Cash Flows From Operating Activities:
Net cash flows provided
  by (used for) operations .............     $ (1,110.9)   $  1,012.5    $    116.1    $  1,600.0    $       --    $  1,617.7
                                             ----------    ----------    ----------    ----------    ----------    ----------
Cash Flows From Investing Activities:
Net decrease (increase) in financing and
  leasing assets .......................          433.0         366.0        (389.4)     (5,505.9)           --      (5,096.3)
Decrease in inter-company loans
  and investments ......................       (3,527.0)           --            --            --       3,527.0            --
Other ..................................                                                     41.6            --          41.6
                                             ----------    ----------    ----------    ----------    ----------    ----------
Net cash flows (used for) provided by
  investing activities .................       (3,094.0)        366.0        (389.4)     (5,464.3)      3,527.0      (5,054.7)
                                             ----------    ----------    ----------    ----------    ----------    ----------
Cash Flows From Financing Activities:
Net increase (decrease) in debt ........        4,147.3        (515.7)        177.7          42.0            --       3,851.3
Inter-company financing ................             --        (602.6)         (4.4)      4,134.0      (3,527.0)           --
Cash dividends paid ....................         (110.9)                                       --            --        (110.9)
Other ..................................                                                    (66.9)           --         (66.9)
                                             ----------    ----------    ----------    ----------    ----------    ----------
Net cash flows provided by
  (used for) financing activities ......        4,036.4      (1,118.3)        173.3       4,109.1      (3,527.0)      3,673.5
                                             ----------    ----------    ----------    ----------    ----------    ----------
Net increase (decrease) in cash and
  cash equivalents .....................         (168.5)        260.2        (100.0)        244.8            --         236.5
Cash and cash equivalents,
  beginning of period ..................        1,479.9         410.6         227.5        (144.3)           --       1,973.7
                                             ----------    ----------    ----------    ----------    ----------    ----------
Cash and cash equivalents, end of period     $  1,311.4    $    670.8    $    127.5    $    100.5    $       --    $  2,210.2
                                             ==========    ==========    ==========    ==========    ==========    ==========

Year Ended December 31, 2003
Cash Flows From Operating Activities:
Net cash flows provided
  by operations ........................     $    224.4    $    629.7    $    386.6    $  1,241.5    $       --    $  2,482.2
                                             ----------    ----------    ----------    ----------    ----------    ----------
Cash Flows From Investing Activities:
Net increase in financing and
  leasing assets .......................         (982.4)       (338.2)       (416.4)     (2,560.4)           --      (4,297.4)
Decrease in inter-company loans
  and investments ......................       (1,534.9)           --            --            --       1,534.9            --
Other ..................................             --            --            --          14.8            --          14.8
                                             ----------    ----------    ----------    ----------    ----------    ----------
Net cash flows (used for)
  investing activities .................       (2,517.3)       (338.2)       (416.4)     (2,545.6)      1,534.9      (4,282.6)
                                             ----------    ----------    ----------    ----------    ----------    ----------
Cash Flows From Financing Activities:
Net increase (decrease) in debt ........        2,461.9        (812.2)       (709.1)        902.3            --       1,842.9
Inter-company financing ................             --         700.2         672.7         162.0      (1,534.9)           --
Cash dividends paid ....................             --            --            --        (101.8)           --        (101.8)
Other ..................................             --            --            --          (3.6)           --          (3.6)
                                             ----------    ----------    ----------    ----------    ----------    ----------
Net cash flows provided by
  (used for) financing activities ......        2,461.9        (112.0)        (36.4)        958.9      (1,534.9)      1,737.5
                                             ----------    ----------    ----------    ----------    ----------    ----------
Net (decrease) increase in cash and
  cash equivalents .....................          169.0         179.5         (66.2)       (345.2)           --         (62.9)
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     $  1,479.9    $    410.6    $    227.5    $   (144.3)   $       --    $  1,973.7
                                             ==========    ==========    ==========    ==========    ==========    ==========


                                       98


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)




                                                                             CIT
              CONSOLIDATING                       CIT        Capita        Holdings      Other
         STATEMENT OF CASH FLOWS              Group Inc.   Corporation       LLC     Subsidiaries  Eliminations      Total
         -----------------------              ----------   -----------     --------  ------------  ------------      -----
                                                                                               
Three Months Ended December 31, 2002
Cash Flows From Operating Activities:
Net cash flows provided
  by operations ........................     $ (2,191.1)   $    115.1    $   51.5    $  2,443.0    $       --    $    418.5
                                             ----------    ----------   ---------    ----------    ----------    ----------
Cash Flows From Investing Activities:
Net decrease (increase) in financing and
  leasing assets .......................          212.8      (1,062.8)      (43.6)      1,076.7            --         183.1
Decrease in inter-company loans
  and investments ......................        2,217.4            --          --            --      (2,217.4)           --
Other ..................................             --            --          --          (4.3)           --          (4.3)
                                             ----------    ----------   ---------    ----------    ----------    ----------
Net cash flows (used for) provided by
  investing activities .................        2,430.2      (1,062.8)      (43.6)      1,072.4      (2,217.4)        178.8
                                             ----------    ----------   ---------    ----------    ----------    ----------
Cash Flows From Financing Activities:
Net (decrease) increase in debt ........         (666.0)        (42.3)      (30.8)        (70.6)           --        (809.7)
Inter-company financing ................             --         995.3       (13.7)     (3,199.0)      2,217.4            --
Cash dividends paid ....................             --            --          --         (25.4)           --         (25.4)
                                             ----------    ----------   ---------    ----------    ----------    ----------
Net cash flows (used for)
  provided by financing activities .....         (666.0)        953.0       (44.5)     (3,295.0)      2,217.4        (835.1)
                                             ----------    ----------   ---------    ----------    ----------    ----------
Net (decrease) increase in cash and
  cash equivalents .....................         (426.9)          5.3       (36.6)        220.4            --        (237.8)

Cash and cash equivalents,
  beginning of period ..................        1,737.8         225.8       330.3         (19.5)           --       2,274.4
                                             ----------    ----------   ---------    ----------    ----------    ----------
Cash and cash equivalents,
  end of period ........................     $  1,310.9    $    231.1    $  293.7    $    200.9    $       --    $  2,036.6
                                             ==========    ==========   =========    ==========    ==========    ==========

Year Ended September 30, 2002
Cash Flows From Operating Activities:
Net cash flows provided by
  (used for) operations ................     $    334.7    $   (298.1)   $ (688.2)   $  1,785.9    $       --    $  1,134.3
                                             ----------    ----------    --------    ----------      --------    ----------
Cash Flows From Investing Activities:
Net decrease in financing
  and leasing assets ...................          662.0         211.9       721.3       1,040.6            --       2,635.8
Decrease in intercompany loans and
  investments ..........................        1,008.3            --          --            --      (1,008.3)           --
Other ..................................             --            --          --         (52.5)           --         (52.5)
                                             ----------    ----------    --------    ----------      --------    ----------
Net cash flows provided by
  investing activities .................        1,670.3         211.9       721.3         988.1      (1,008.3)      2,583.3
                                             ----------    ----------    --------    ----------      --------    ----------
Cash Flows From Financing Activities:
Net (decrease) increase in debt ........       (1,885.3)     (1,021.2)      175.3        (698.1)           --      (3,429.3)
Intercompany financing .................             --       1,226.2       117.7      (2,352.2)      1,008.3            --
Capital contributions from former parent          923.5            --          --            --            --         923.5
Proceeds from issuance of common stock .          254.6            --          --            --            --         254.6
Net cash flows (used for) provided by        ----------    ----------    --------    ----------      --------    ----------
  financing activities .................         (707.2)        205.0       293.0      (3,050.3)      1,008.3      (2,251.2)
                                             ----------    ----------    --------    ----------      --------    ----------
Net increase (decrease) in cash and
cash equivalents .......................        1,297.8         118.8       326.1        (276.3)           --       1,466.4
Cash and cash equivalents,
  beginning of period ..................          440.0         107.0         4.2         256.8            --         808.0
                                             ----------    ----------    --------    ----------      --------    ----------
Cash and cash equivalents,                   $  1,737.8    $    225.8    $  330.3    $    (19.5)   $       --    $  2,274.4
  end of period ........................     ==========    ==========   =========    ==========    ==========    ==========





                                       99


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 26 -- Selected Quarterly Financial Data (Unaudited)

      Summarized  quarterly  financial data are presented  below ($ in millions,
except per share data).



                                                                          Year Ended December 31, 2004
                                                                    ------------------------------------------
                                                                     First     Second       Third      Fourth
                                                                    Quarter    Quarter     Quarter     Quarter
                                                                    -------    -------     -------     -------
                                                                                           
Net finance margin.............................................     $370.4      $378.9      $402.0     $418.3
Provision for credit losses....................................       85.6        65.7        60.2        2.7
Other revenue..................................................      230.4       233.5       212.5      214.2
Net gain (loss) on venture capital investments.................        0.7         3.0         4.2      (11.4)
Salaries and general operating expenses........................      247.3       260.3       256.7      282.1
Net gain on debt call..........................................       41.8          --          --        --
Provision for income taxes.....................................     (121.1)     (112.8)     (117.7)    (131.6)
Minority interest after tax....................................         --          --        (0.2)      (0.9)
Net income.....................................................     $189.3      $176.6      $183.9     $203.8
Net income per diluted share...................................     $ 0.88      $ 0.82      $ 0.86     $ 0.95





                                                                          Year Ended December 31, 2003
                                                                    ------------------------------------------
                                                                     First     Second       Third      Fourth
                                                                    Quarter    Quarter     Quarter     Quarter
                                                                    -------    -------     -------     -------
                                                                                           
Net finance margin.............................................     $305.7      $332.5      $335.1     $354.5
Provision for credit losses....................................      103.0       100.6        82.9      100.8
Other revenue..................................................      239.9       229.7       232.0      246.0
Net loss on venture capital investments........................       (4.4)      (12.1)      (11.3)     (60.5)
Salaries and general operating expenses........................      225.6       220.5       230.3      236.5
Net gain on debt call..........................................         --          --          --       50.4
Provision for income taxes.....................................      (82.9)      (89.3)      (94.6)     (98.2)
Dividends on preferred capital
   securities, after tax.......................................       (2.7)       (2.7)         --         --
Minority interest after tax....................................         --        (0.1)       (0.2)       0.3
Net income.....................................................     $127.0      $136.9      $147.8     $155.2
Net income per diluted share...................................     $ 0.60      $ 0.65      $ 0.69     $ 0.72





                                                                           Year Ended September 30, 2002
                                                                    -------------------------------------------
                                                     Three Months
                                                        Ended
                                                     December 31,    First     Second       Third      Fourth
                                                         2002       Quarter    Quarter     Quarter     Quarter
                                                     ------------   -------    -------     -------     -------
                                                                                         
Net finance margin...................................   $344.9      $483.9     $ 442.5      $ 348.1     $362.6
Provision for credit losses..........................    133.4       112.9       195.0        357.7      122.7
Other revenue........................................    263.5       242.5       237.4        247.5      245.2
Net (loss) gain on venture capital investment........     (6.4)        2.6        (5.3)        (1.4)     (36.2)
Salaries and general operating expenses..............    232.6       235.1       228.5        230.0      227.4
Interest expense -- TCH..............................      --         76.3       305.0        281.3        --
Goodwill impairment..................................      --           --     4,512.7      1,999.0        --
Provision for income taxes...........................    (92.0)     (118.2)      (50.4)      (121.3)     (84.1)
Dividends on preferred capital
   securities, after tax.............................     (2.7)       (2.4)       (2.7)        (2.7)      (2.7)
Net income (loss)....................................   $141.3      $184.1   $(4,619.7)   $(2,397.8)    $134.7
Net income (loss) per diluted share..................   $ 0.67      $ 0.87    $ (21.84)    $ (11.33)    $ 0.64



                                      100


                         CIT GROUP INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 27 -- Subsequent Event

      On February 14, 2005, CIT announced the successful  completion of its cash
tender offer for all outstanding shares of common stock of the Education Lending
Group, Inc. (Nasdaq: EDLG).  Approximately 98% percent of the outstanding shares
of EDLG were tendered to CIT's offer of $19.05 cash per share.  Under applicable
law, the merger is not subject to the approval of the remaining  stockholders of
EDLG. All necessary regulatory  approvals for the transaction were obtained.  On
February 17, 2005,  EDLG merged with a wholly owned  subsidiary  of CIT, and the
remaining EDLG  shareholders  received the right to payment of $19.05 per share.
Effective upon this merger,  EDLG became a wholly owned  subsidiary of CIT Group
Inc.


                                      101


Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

      None

Item 9A. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

      Under  the  supervision  and with  the  participation  of our  management,
including our principal  executive officer and principal  financial officer,  we
conducted an evaluation of our disclosure controls and procedures,  as such term
is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of
1934, as amended (the Exchange  Act).  Based on this  evaluation,  our principal
executive  officer  and our  principal  financial  officer  concluded  that  our
disclosure  controls  and  procedures  were not  effective  as of the end of the
period covered by this annual report because of the material weakness  discussed
below.

Management's Report on Internal Control Over Financial Reporting

      Management of CIT is responsible for establishing and maintaining adequate
internal  control  over  financial  reporting,  as such  term is  identified  in
Exchange Act Rules  13a-15(f).  Internal  control over financial  reporting is a
process designed to provide  reasonable  assurance  regarding the reliability of
financial  reporting and the  preparation  of financial  statements for external
purposes  in  accordance  with  generally  accepted  accounting  principles.   A
company's internal control over financial  reporting includes those policies and
procedures  that (i) pertain to the  maintenance  of records that, in reasonable
detail,  accurately and fairly reflect the  transactions and dispositions of the
assets of the company;  (ii) provide reasonable  assurance that transactions are
recorded  as  necessary  to  permit  preparation  of  financial   statements  in
accordance with generally accepted accounting principles,  and that receipts and
expenditures   of  the   company  are  being  made  only  in   accordance   with
authorizations  of management  and  directors of the company;  and (iii) provide
reasonable  assurance  regarding  prevention or timely detection of unauthorized
acquisition,  use,  or  disposition  of the  company's  assets that could have a
material effect on the financial statements.

      Management of CIT, including our principal executive officer and principal
financial officer, conducted an evaluation of the effectiveness of the Company's
internal  control  over  financial  reporting  as of December 31, 2004 using the
criteria set forth by the Committee of Sponsoring  Organizations of the Treadway
Commission in Internal Control -- Integrated Framework.  Because of its inherent
limitations, internal control over financial reporting may not prevent or detect
misstatements.  Also,  projections of any evaluation of  effectiveness to future
periods are subject to the risk that controls may become  inadequate  because of
changes in  conditions,  or that the degree of  compliance  with the policies or
procedures may deteriorate.

      A material  weakness is a control  deficiency,  or  combination of control
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.  As of December 31,  2004,  the Company did not maintain  effective
controls over the  reconciliations of the differences  between the tax basis and
book basis of each  component of the  Company's  balance sheet with the deferred
tax asset and liability  accounts.  The control deficiency did not result in any
adjustments  to the 2004 annual or interim  consolidated  financial  statements.
However, this control deficiency results in more than a remote likelihood that a
material  misstatement  to the  deferred  tax asset and  liability  accounts and
income tax provision  will not be prevented or detected in the annual or interim
consolidated financial statements.  Accordingly,  management has determined that
this condition constitutes a material weakness based on our evaluation under the
criteria in Internal  Control -- Integrated  Framework  and  concluded  that the
Company did not maintain effective internal control over financial  reporting as
of  December  31,  2004,  due to the  aforementioned  tax  basis  balance  sheet
reconciliation issues.

      Management's  assessment of the  effectiveness  of the Company's  internal
control  over  financial  reporting  as of December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report (which  expressed an unqualified  opinion on management's
assessment and an adverse opinion on the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004) which appears on pages
52 through 53.


                                      102


Income Tax Financial Reporting and Internal Control Changes

      As discussed  above,  management has determined that the lack of a control
to  reconcile  the  difference  between  the tax  basis  and book  basis of each
component  of the  Company's  balance  sheet  with the  deferred  tax  asset and
liability  accounts  constitutes a material  weakness.  Management has performed
alternative  analyses and  reconciliations  of the income tax balance  sheet and
income  statement  accounts and based thereon  believes that the 2004 income tax
provision is appropriate and that the remediation  will not result in a material
adjustment  to the Company's  reported  balance sheet or net income as of or for
the year ended December 31, 2004.

      In  connection  with the June 2001  acquisition  by Tyco,  our  income tax
compliance, reporting and planning function was transferred to Tyco. This caused
a lapse in maintaining,  developing and  implementing  changes to various income
tax financial  reporting  processes that are currently  required.  Following our
2002 IPO, we  classified  our tax  reporting  as a  "reportable  condition",  as
defined by standards  established by the American  Institute of Certified Public
Accountants.  As previously  reported,  we have made  substantial  progress with
respect to the reportable condition by hiring and training personnel, rebuilding
tax reporting  systems,  preparing  amendments to prior U.S.  Federal income tax
returns,  and  implementing  processes  and controls  with respect to income tax
reporting and compliance. Throughout 2004, we continued to develop the processes
and  controls to  complete  an  analysis  of our income tax asset and  liability
accounts,  including the refinement of and reconciliation to transactional level
detail of book to tax differences.

      As of the end of the  period  covered  by this  report,  we have not fully
remediated the material  weakness in the Company's  internal control over income
tax deferred  assets and  liabilities.  In this regard,  we have  conducted  the
following remedial actions:

      o     Established a 2005 remediation plan to compute the book to tax basis
            differences at an asset and liability transactional level, including
            documentation, testing and periodic updates to senior management and
            the Audit Committee;

      o     Further  enhanced,  and will  continue to enhance,  data  processing
            capabilities  to automate and better control the calculation of book
            to tax assets and liabilities at the transactional level; and

      o     Continued to develop  procedures  and processes to prove the changes
            in the book to tax basis of our assets and liabilities that occur in
            interim and annual financial reporting periods.

      Other than the changes discussed above,  there have been no changes to the
Company's  internal  control over  financial  reporting  that occurred since the
beginning of the Company's fourth quarter of 2004 that have materially affected,
or are reasonably likely to materially  affect,  the Company's  internal control
over financial reporting.

Item 9B. Other Information.

      None


                                      103


                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

      The  information  called for by Item 10 is  incorporated by reference from
the  information  under the caption  "Election of  Directors"  and  "Election of
Directors --  Executive  Officers"  in our Proxy  Statement  for our 2005 annual
meeting of stockholders.

Item 11. Executive Compensation.

      The  information  called for by Item 11 is  incorporated by reference from
the  information  under the caption  "Compensation  of Directors  and  Executive
Officers" in our Proxy Statement for our 2005 annual meeting of stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

      The  information  called for by Item 12 is  incorporated by reference from
the  information  under  the  caption  "Principal  Shareholders"  in  our  Proxy
Statement for our 2005 annual meeting of stockholders.

Item 13. Certain Relationships and Related Transactions.

      The  information  called for by Item 13 is  incorporated by reference from
the  information   under  the  caption   "Certain   Relationships   and  Related
Transactions"   in  our  Proxy   Statement  for  our  2005  annual   meeting  of
stockholders.

Item 14. Principal Accountant Fees and Services.

      The  information  called for by Item 14 is  incorporated by reference from
the information  under the caption  "Appointment of Independent  Accountants" in
our Proxy Statement for our 2005 annual meeting of stockholders.


                                      104


                                     PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

      (a)   The following  documents are filed with the  Securities and Exchange
            Commission as part of this report (see Item 8):

            1.    The following financial statements of CIT and Subsidiaries:

                  Report of Independent Registered Public Accounting Firm

                  Consolidated  Balance Sheets at December 31, 2004 and December
                  31, 2003.

                  Consolidated Statements of Income for the years ended December
                  31, 2004 and 2003,  for the three  months  ended  December 31,
                  2002 and for the fiscal year ended September 30, 2002.

                  Consolidated  Statements of Stockholders' Equity for the years
                  ended  December 31, 2004 and 2003,  for the three months ended
                  December 31, 2002 and for the fiscal year ended  September 30,
                  2002.

                  Consolidated  Statements  of Cash  Flows for the  years  ended
                  December  31,  2004  and  2003,  for the  three  months  ended
                  December 31, 2002 and for the fiscal year ended  September 30,
                  2002.

                  Notes to Consolidated Financial Statements

            2.    All schedules are omitted  because they are not  applicable or
                  because the required  information  appears in the Consolidated
                  Financial Statements or the notes thereto.

      (b)   Exhibits

            3.1   Second Restated  Certificate of  Incorporation  of the Company
                  (incorporated by reference to Form 10-Q filed by CIT on August
                  12, 2003).

            3.2   Amended and Restated  By-laws of the Company  (incorporated by
                  reference to Form 10-Q filed by CIT on August 12, 2003).

            4.1   Form of  Certificate of Common Stock of CIT  (incorporated  by
                  reference   to  Exhibit  4.1  to   Amendment   No.  3  to  the
                  Registration Statement on Form S-3 filed June 26, 2002).

            4.2   Indenture  dated as of August 26,  2002 by and among CIT Group
                  Inc.,  J.P.  Morgan Trust Company,  National  Association  (as
                  successor  to 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).

            4.3   Form of  Indenture  dated as of October 29,  2004  between CIT
                  Group Inc. and J.P. Morgan Trust Company, National Association
                  for the issuance of senior debt  securities  (Incorporated  by
                  reference to Exhibit 4.4 to Form S-3/A filed by CIT on October
                  28, 2004).

            4.4   Form of  Indenture  dated as of October 29,  2004  between CIT
                  Group Inc. and J.P. Morgan Trust Company, National Association
                  for the issuance of subordinated debt securities (Incorporated
                  by  reference  to Exhibit  4.5 to Form  S-3/A  filed by CIT on
                  October 28, 2004).

            4.5   Certain  instruments  defining  the rights of holders of CIT's
                  long-term  debt,  none of which  authorize  a total  amount of
                  indebtedness in excess of 10% of the total amounts outstanding
                  of CIT and its  subsidiaries on a consolidated  basis have not
                  been filed as exhibits.  CIT agrees to furnish a copy of these
                  agreements to the Commission upon request.

            4.6   5-Year  Credit  Agreement,  dated as of October 10, 2003 among
                  J.P.  Morgan  Securities  Inc.,  a  joint  lead  arranger  and
                  bookrunner,  Citigroup  Global  Markets  Inc.,  as joint  lead
                  arranger   and   bookrunner,   JP   Morgan   Chase   Bank   as
                  administrative  agent,  Bank of America,  N.A. as  syndication
                  agent,   and  Barclays  Bank  PLC,  as   documentation   agent
                  (Incorporated  by  reference to Exhibit 4.2 to Form 10-Q filed
                  by CIT on November 7, 2003).


                                      105


            4.7     364-Day Credit Agreement,  dated as of April 14, 2004, among
                    CIT Group Inc., the several banks and financial institutions
                    named therein,  J.P.  Morgan  Securities,  Inc., and Banc of
                    America   Securities   LLC,  as  joint  lead  arrangers  and
                    bookrunners,  JP Morgan Chase Bank, as administrative agent,
                    and Bank of America,  N.A. and Citibank N.A., as syndication
                    agents  and  Barclays  Bank  PLC,  as  documentation   agent
                    (Incorporated by reference to Exhibit 4.2 to Form 10-Q filed
                    by CIT on May 7, 2004).

            4.8     5-Year Credit  Agreement,  dated as of April 14, 2004, among
                    CIT Group Inc., the several banks and financial institutions
                    named therein,  J.P.  Morgan  Securities  Inc. and Citigroup
                    Global   Markets   Inc.,   as  joint  lead   arrangers   and
                    bookrunners,  JP Morgan Chase Bank, as administrative agent,
                    Bank of America,  N.A., as  syndication  agents and Barclays
                    Bank PLC, as documentation  agent (Incorporated by reference
                    to Exhibit 4.3 to Form 10-Q filed by CIT on May 7, 2004).

            10.1    Agreement dated as of June 1, 2001 between CIT Holdings (NV)
                    Inc., a wholly-owned  subsidiary of Tyco International Ltd.,
                    and CIT (formerly known as Tyco Capital Corporation and Tyco
                    Acquisition  Corp.  XX (NV) and  successor to The CIT Group,
                    Inc.), a Nevada corporation,  regarding transactions between
                    CIT Holdings and CIT  (incorporated  by reference to Exhibit
                    10.1 to  Amendment  No. 3 to the  Registration  Statement on
                    Form S-3 filed June 7, 2002).

            10.2    Form  of   Separation   Agreement   by  and   between   Tyco
                    International  Ltd.  and CIT  (incorporated  by reference to
                    Exhibit  10.2  to  Amendment  No.  3  to  the   Registration
                    Statement on Form S-3 filed June 26, 2002).

            10.3    Form of  Financial  Services  Cooperation  Agreement  by and
                    between Tyco  International  Ltd. and CIT  (incorporated  by
                    reference  to  Exhibit  [10.3]  to  Amendment  No.  3 to the
                    Registration Statement on Form S-3 filed June 12, 2002).

            10.4*   Employment  Agreement for Joseph M. Leone dated as of August
                    1, 2004  (incorporated  by reference to Exhibit 10.3 to Form
                    10-Q filed by CIT on November 9, 2004).

            10.5*   Employment  Agreement  for  Thomas  B.  Hallman  dated as of
                    August 1, 2004 (incorporated by reference to Exhibit 10.2 to
                    Form 10-Q filed by CIT on November 9, 2004).

            10.6*   Employment  Agreement for Lawrence A. Marsiello  dated as of
                    August 1, 2004 (incorporated by reference to Exhibit 10.4 to
                    Form 10-Q filed by CIT on November 9, 2004).

            10.7*   Employment  Agreement  for  Jeffrey M. Peek dated as of July
                    22, 2003  (incorporated  by  reference to Form 10-Q filed by
                    CIT on November 7, 2003).

            10.8*   Amendment  to  Employment  Agreement  by and among CIT Group
                    Inc.  and  Jeffrey  M.  Peek  dated  as  of  July  22,  2004
                    (Incorporated  by  reference  to  Exhibit  10.1 to Form 10-Q
                    filed by CIT on November 9, 2004).

            10.9*   Employment  Agreement  by  and  among  CIT  Group  Inc.  and
                    Frederick   E.   Wolfert   dated  as  of   August   1,  2004
                    (Incorporated  by  reference  to  Exhibit  10.5 to Form 10-Q
                    filed by CIT on November 9, 2004).

            10.10*  2004  Extension  and Funding  Agreement  dated  September 8,
                    2004, by and among Dell Financial Services L.P., Dell Credit
                    Company L.L.C.,  DFS-SPV L.P., DFS-GP, Inc., Dell Inc., Dell
                    Gen.  P.  Corp.,  Dell  DFS  Corporation,  CIT  Group  Inc.,
                    CIT Financial USA,  Inc.,  CIT DCC Inc.,  CIT DFS Inc.,  CIT
                    Communications Finance Corporation, and CIT Credit Group USA
                    Inc.  (Incorporated by reference to Form 8-K filed by CIT on
                    September 9, 2004).

            10.11*  Executive  Severance  Plan  (incorporated  by  reference  to
                    Exhibit  10.24  to  Amendment  No.  3  to  the  Registration
                    Statement on Form S-3 filed June 26, 2002).

            10.12*  Long-Term   Equity   Compensation   Plan   (incorporated  by
                    reference to Form DEF-14A filed April 23, 2003).


                                      106


            10.13   Form of Indemnification Agreement (incorporated by reference
                    to  Exhibit  10.26 to  Amendment  No. 3 to the  Registration
                    Statement on Form S-3 filed June 26, 2002).

            10.14   Form of Tax Agreement by and between Tyco International Ltd.
                    and CIT  (incorporated  by  reference  to  Exhibit  10.27 to
                    Amendment  No. 3 to the  Registration  Statement on Form S-3
                    filed June 26, 2002).

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

            21.1    Subsidiaries of CIT.

            23.1    Consent of PricewaterhouseCoopers LLP.

            24.1    Powers of Attorney.

            31.1    Certification of Jeffrey M. Peek pursuant to Rules 13a-15(e)
                    and  15d-15(f) of the  Securities  Exchange  Commission,  as
                    promulgated  pursuant  to  Section  13(a) of the  Securities
                    Exchange  Act and Section 302 of the  Sarbanes-Oxley  Act of
                    2002.

            31.2    Certification of Joseph M. Leone pursuant to Rules 13a-15(e)
                    and  15d-15(f) of the  Securities  Exchange  Commission,  as
                    promulgated  pursuant  to  Section  13(a) of the  Securities
                    Exchange  Act and Section 302 of the  Sarbanes-Oxley  Act of
                    2002.

            32.1    Certification  of  Jeffrey  M.  Peek  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.

--------------------------------------------------------------------------------
*     Indicates a management contract or compensatory plan or arrangement.


                                      107


                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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/ ROBERT J. INGATO
                                       .........................................
March 7, 2005                                      Robert J. Ingato
                                       Executive Vice President, General Counsel
                                                     and Secretary

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report has been signed  below by the  following  persons on March 7, 2005 in the
capacities indicated below.

                         Name                                          Date
                         ----                                          ----
                  /S/ JEFFREY M. PEEK
....................................................
                    Jeffrey M. Peek
         Chairman and Chief Executive Officer
                      and Director

                    GARY C. BUTLER*
....................................................
                    Gary C. Butler
                       Director

                 WILLIAM A. FARLINGER*
....................................................
                 William A. Farlinger
                       Director

                    WILLIAM FREEMAN
....................................................
                    William Freeman
                       Director

                    THOMAS H. KEAN*
....................................................
                    Thomas H. Kean
                       Director

                 EDWARD J. KELLY, III*
....................................................
                 Edward J. Kelly, III
                       Director

                 MARIANNE MILLER PARRS*
....................................................
                 Marianne Miller Parrs
                       Director

                   TIMOTHY M. RING
....................................................
                    Timothy M. Ring
                       Director

                      JOHN RYAN*
....................................................
                       John Ryan
                       Director

                    PETER J. TOBIN*
....................................................
                    Peter J. Tobin
                       Director

                  LOIS M. VAN DEUSEN*
....................................................
                  Lois M. Van Deusen
                       Director

                  /S/ JOSEPH M. LEONE
....................................................
                    Joseph M. Leone
                   Vice Chairman and
               Chief Financial Officer

                 /s/ WILLIAM J. TAYLOR
....................................................
                   William J. Taylor
        Executive Vice President, Controller and
             Principal Accounting Officer

*By:             /S/ ROBERT J. INGATO
....................................................
                   Robert J. Ingato
     Executive Vice President, General Counsel
                    and Secretary

      * Original  powers of attorney  authorizing  Robert  Ingato,  and James P.
Shanahan and each of them to sign on behalf of the above-mentioned directors are
held by the  Corporation  and available for  examination  by the  Securities and
Exchange Commission pursuant to Item 302(b) of Regulation S-T.


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Where You Can Find More Information

      A copy of the  Annual  Report on Form 10-K,  including  the  exhibits  and
schedules thereto,  may be read and copied at the SEC's Public Reference Room at
450 Fifth  Street,  N.W.,  Washington  D.C.  20549.  Information  on the  Public
Reference  Room  may be  obtained  by  calling  the  SEC at  1-800-SEC-0330.  In
addition, the SEC maintains an Internet site at  http://www.sec.gov,  from which
interested  parties can  electronically  access the Annual  Report on Form 10-K,
including the exhibits and schedules thereto.

      The Annual  Report on Form 10-K,  including  the  exhibits  and  schedules
thereto,  and other SEC filings,  are available  free of charge on the Company's
Internet site at http://www.cit.com as soon as reasonably practicable after such
material  is  electronically  filed  with  the  SEC.  Copies  of  our  Corporate
Governance  Guidelines,  the Charters of the Audit  Committee,  the Compensation
Committee, and the Nominating and Governance Committee, and our Code of Business
Conduct   are   available,   free   of   charge,   on  our   internet   site  at
http://www.cit.com,  and printed  copies are  available by  contacting  Investor
Relations, 1 CIT Drive, Livingston, NJ 07039 or by telephone at (973) 740-5000.


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