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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K/A
Amendment No. 2 To Form 10-K
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[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
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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
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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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.
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Overview
We are filing this amendment to our Form 10-K for the fiscal year ended
December 31, 2004 to restate Management's Report on Internal Control Over
Financial Reporting included in Item 9A Controls and Procedures.
During the fourth quarter of 2005, we determined that certain compound
derivatives did not qualify for hedge accounting treatment from their inception,
which caused us to restate the financial statements for the quarters ended March
31, June 30, and September 30, 2005 and file amended Form 10-Q's for those
periods. See Item 9A -- Management's Report on Internal Control Over Financial
Reporting (Restated) for a description of the control deficiency identified.
This control deficiency did not result in any material adjustments to the 2004
annual or interim consolidated financial statements. Management concluded that
this control deficiency constitutes a material weakness as of December 31, 2004
due to the fact that its existence could result in a material misstatement to
annual or interim consolidated financial statements that would not be prevented
or detected.
As of the date of this filing, we have fully remediated this material
weakness relating to derivative documentation and hedge accounting treatment.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item 9A. Controls and Procedures.
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 (not presented herein)
In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) of the Form 10-K for the year ended December 31,
2004 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 (Restated) appearing under
Item 9A, that CIT Group Inc. did not maintain effective internal control over
financial reporting as of December 31, 2004, because the Company did not
maintain effective controls over (A) 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 and (B) the
classification and related valuation and documentation over certain of its
compound derivative transactions, specifically certain cross-currency interest
rate swaps used to hedge the Company's foreign-denominated debt, 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.
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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 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 weaknesses have been identified and included
in management's assessment as of December 31, 2004.
(A) 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.
(B) The Company did not maintain effective controls over the classification
and related valuation and documentation of certain of its compound
derivative transactions, specifically certain cross-currency interest rate
swaps used to hedge the Company's foreign-denominated debt. This control
deficiency did not result in a material misstatement to the 2004 annual or
interim consolidated financial statements. However, this control
deficiency resulted in the restatement of the Company's 2005 first, second
and third quarter interim consolidated financial statements. This control
deficiency could result in the misstatement of derivative related accounts
including other revenue, debt and other comprehensive income that would
result in a material misstatement of the annual or interim financial
statements that would not be prevented or detected. Accordingly,
management has concluded that this control deficiency constitutes a
material weakness.
These material weaknesses were 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 weaknesses 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.
Management and we previously concluded that the Company did not maintain
effective internal control over financial reporting as of December 31, 2004
because of the material weakness described in (A) above. Subsequent to the
issuance of our reports, management determined that the material weakness
described in (B) above also
2
existed as of December 31, 2004. Accordingly, Management's Report on Internal
Control Over Financial Reporting and our opinion on the effectiveness of
internal control over financial reporting have been restated to include this
additional material weakness.
PricewaterhouseCoopers LLP
New York, New York
March 4, 2005, except for the matter
described in the penultimate paragraph
of Management's Report on Internal
Control Over Financial Reporting as to
which the date is December 12, 2005
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
(Restated)
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 weaknesses
discussed below.
Management's Report on Internal Control Over Financial Reporting (Restated)
Management of CIT is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is identified in
Exchange Act Rule 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.
As of December 31, 2004, the Company did not maintain effective controls
over the classification and related valuation and documentation of certain of
its compound derivative transactions, specifically certain cross-currency
3
interest rate swaps used to hedge the Company's foreign-denominated debt. This
control deficiency did not result in a material misstatement to the 2004 annual
or interim consolidated financial statements. This control deficiency resulted
in the restatement of the Company's 2005 first, second and third quarter interim
consolidated financial statements. In addition, this control deficiency could
result in the misstatement of derivative related accounts, including other
revenue, debt and other comprehensive income that would result in a material
misstatement of the annual or interim financial statements, that would not be
prevented or detected. Accordingly, management has concluded that this control
deficiency constitutes a material weakness as of December 31, 2004.
Based on management's evaluation under the criteria in Internal Control -
Integrated Framework issued by the COSO, management has concluded that CIT did
not maintain effective internal control over financial reporting as of December
31, 2004 because of the effect of the material weaknesses described above.
Management previously concluded that the Company did not maintain
effective internal controls over financial reporting as of December 31, 2004
because of the income tax-related material weakness described above. Subsequent
to the issuance of our report management determined that the derivative-related
material weakness described above also existed as of December 31, 2004.
Accordingly, we have restated our report on internal control over financial
reporting to include this additional material weakness.
Management's restated 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 herein.
Changes in Internal Control Over Financial Reporting
Derivative Hedge Accounting
During the fourth quarter of 2005, we learned of an interpretation with
respect to applying the "matched terms" approach in hedge accounting under
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended ("SFAS 133"). We reviewed our
accounting for certain cross-currency interest rate swaps ("compound swaps" or
"compound derivatives") under SFAS 133.
We determined that certain compound swaps were not appropriately accounted
for, even though these swaps were highly effective economic hedges of the
interest rate and currency exchange risks associated with corresponding foreign
denominated debt. We documented these swaps originally as "matched terms"
hedges, which assumes no hedge ineffectiveness. The swaps would have qualified
for "long-haul" hedge accounting, with ineffectiveness reflected in current
earnings. However, the swaps did not qualify for hedge accounting treatment from
their inception, as SFAS 133 does not allow for subsequent documentation
modifications.
The elimination of hedge accounting from inception of the compound swaps
resulted in restatements of originally reported earnings in each of the
quarterly periods of 2005 to reflect the elimination of adjustments to the
corresponding debt under SFAS 133 fair value hedge accounting for changes in
interest rates during each period. These adjustments to earnings will reduce
future earnings by an equal amount through 2015.
In connection with this restatement, under the direction of our principal
executive officer and our principal financial officer, we determined that the
above constituted a material weakness in internal control with respect to our
accounting treatment and related hedge documentation for certain cross-currency
swaps as of December 31, 2004.
As of the date of this filing, we have fully remediated this material
weakness relating to derivative documentation and hedge accounting treatment.
Our remediation actions included the following:
o All of the subject compound swaps have been replaced with
corresponding stand alone replacement swaps (a cross-currency basis
swap and an interest rate swap, both with zero fair value at
inception), which qualify for hedge accounting treatment under SFAS
133.
o We do not intend to transact compound swaps prospectively and have
communicated a formal prohibition against such transactions to the
appropriate treasury, accounting, legal and internal audit
personnel.
4
o We have updated our derivative policy manual to specifically
prohibit the use of compound swaps.
o We have conducted training sessions with the appropriate treasury,
accounting, legal and internal audit personnel with respect to the
above to ensure that we evaluate and document derivative
transactions in compliance with SFAS 133.
Income Tax Accounting
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 in internal control over
financial reporting. 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, with respect to income tax
accounting and derivative hedge accounting, 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
5
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
.........................................
December 13, 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 December 13, 2005 in
the capacities indicated below.
Name Date
---- ----
/S/ JEFFREY M. PEEK December 13, 2005
....................................................
Jeffrey M. Peek
Chairman and Chief Executive Officer
and Director
GARY C. BUTLER*
....................................................
Gary C. Butler
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
....................................................
Seymour Sternberg
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.
6