CIT ANNUAL REPORT 2011 95

CIT GROUP AND SUBSIDIARIES — NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BUSINESS AND SUMMARY OF SIGNIFICANT fresh start accounting is reflected in the Consolidated Balance ACCOUNTING POLICIES Sheet as of December 31, 2009; fresh start adjustments related CIT Group Inc. became a holding company (“BHC”) in 2008 thereto are included in the Statement of Operations for the year and has provided financial solutions to its clients since its forma- ended December 31, 2009. There was no Consolidated State- tion in 1908. The Company provides financing and leasing capital ment of Operation for the period between December 10, 2009 principally for small businesses and middle market companies in and December 31, 2009. Accretion and amortization of certain a wide variety of industries and offer vendor, equipment, com- FSA adjustments began on January 1, 2010. As a result, Predeces- mercial and structured financing products, as well as factoring sor CIT’s Consolidated Statements of Operation and Cash Flows and management advisory services. CIT is the parent of CIT Bank, for the year ended December 31, 2009 are not comparable to the a state-chartered bank in Utah. The Company operates primarily consolidated financial statements for Successor CIT and are pre- in North America, with locations in Europe, Latin America sented separately. and Asia. The terms “CIT” and “Company“, when used with respect to the periods commencing after emergence from bankruptcy, are refer- BASIS OF PRESENTATION ences to Successor CIT and when used with respect to the Principles of Consolidation periods prior to emergence from bankruptcy, are references to Predecessor CIT. These references include the subsidiaries of The accompanying consolidated financial statements include Successor CIT or Predecessor CIT, unless otherwise indicated or financial information related to CIT Group Inc., a the context requires otherwise. Corporation, and its majority owned subsidiaries, including CIT Bank (collectively, “CIT” or the “Company”), and those variable On January 1, 2010, the Company implemented new consolida- interest entities (“VIEs”) where the Company is the primary ben- tion accounting guidance related to variable interest entities eficiary. Assets held in an agency or fiduciary capacity are not (“VIEs”). The new guidance eliminated the concept of qualified included in the consolidated financial statements. special purpose entities (“QSPEs”) that were previously exempt from consolidation, and introduced a new framework for deter- In preparing the consolidated financial statements, all significant mining the primary beneficiary of a VIE. The primary beneficiary inter-company accounts and transactions have been eliminated. of a VIE is required to consolidate the assets and liabilities of the On November 1, 2009, CIT Group Inc. (“Predecessor CIT”) VIE. Under the new guidance, the primary beneficiary is the party and CIT Group Funding Company of Delaware LLC (“Delaware that has both (1) the power to direct the activities of an entity that Funding” and together with Predecessor CIT, the “Debtors”) filed most significantly impact the VIE’s economic performance; and voluntary petitions for relief under Chapter 11 of the U.S. Bank- (2) through its interests in the VIE, the obligation to absorb losses ruptcy Code (the “Bankruptcy Code”) in the United States or the right to receive benefits from the VIE that could potentially Bankruptcy Court for the Southern District of New York (the be significant to the VIE. As a result of applying the new consoli- ”Court”). As a result of the Debtors’ emergence from bank- dation accounting guidance, the Company consolidated a ruptcy and implementation of the Modified Second Amended number of VIEs that were used primarily to securitize assets. Con- Prepackaged Reorganization Plan of Debtors (the “Plan”) on solidation of these entities eliminated the retained interest and December 10, 2009 (the “Emergence Date”), CIT Group Inc. increased Cash $(134 million), Loans $(1.3 billion), Allowance for (“Successor CIT”) became a new reporting entity for financial loan losses $(69 million), Long-term borrowings $(1.2 billion), reporting purposes, effective December 31, 2009 (the “Conve- and Other liabilities $(17 million) as of January 1, 2010. Equity nience Date”), with a new basis in its identifiable assets and decreased by approximately $18 million as of January 1, 2010. liabilities assumed, a new capital structure and no retained earnings or accumulated losses. Accordingly, the consolidated Use of Estimates financial statements of Predecessor CIT are presented separately The accounting and financial reporting policies of CIT Group Inc. from the consolidated financial statements of Successor CIT. conform to GAAP and the preparation of the consolidated finan- cial statements in conformity with GAAP requires management to As detailed in Note 26, the consolidated financial statements make estimates and assumptions that affect reported amounts include the effects of adopting Fresh Start Accounting (“FSA”) and disclosures. Actual results could differ from those estimates upon emergence from bankruptcy, as required by generally and assumptions. Some of the more significant estimates include: accepted accounting principles in the United States of America fresh start accounting fair values; valuation of deferred tax assets; (“GAAP”). In applying FSA, the fair value of assets, liabilities lease residual values and depreciation of operating lease equip- and equity were derived by applying market information at the ment; and allowance for loan losses. Additionally, where Emergence Date to account balances at December 31, 2009, applicable, the policies conform to accounting and reporting unless (i) those account balances were originated subsequent guidelines prescribed by bank regulatory authorities. to December 10, 2009, in which case fair values were assigned based upon their origination value or (ii) the basis of accounting SIGNIFICANT ACCOUNTING POLICIES applicable to the balances was fair value, in which instance fair value was determined using market information at December 31, Financing and Leasing Assets 2009. Management evaluated events between December 10, CIT extends credit to customers through a variety of financing 2009 and December 31, 2009 and concluded the use of an arrangements, including term and revolver loans, lease financ- accounting convenience date of December 31, 2009 was appro- ing and operating leases. The amounts outstanding on loans, priate based upon the immateriality of such activity. As such, direct financing and leveraged leases are referred to as finance

Item 8: Financial Statements and Supplementary Data