FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of a Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month(s) of: June 30, 1999
NEWCOURT CREDIT GROUP INC.
Newcourt Centre, 207 Queens Quay West
Suite 700
Toronto, Ontario
Canada, M5J 1A7
[Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.]
Form 20-F / / Form 40-F /X/
[Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.]
Yes / / No /X/
[If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b)]
82-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 5, 1999
NEWCOURT CREDIT GROUP INC.
/__________________________/
By: John P. Stevenson
Corporate Secretary
News Release
For immediate release
Trading Symbol: NCT Media Contact: Rick Perkins
(416) 507-5437
Exchange Listing: Toronto Investor Contact: Geoff Ichii
Montreal (416) 507-6151
New York
Newcourt reports second quarter earnings
Toronto, August 4, 1999 - Newcourt Credit Group today reported net income of
US$97.7 million for the six months ended June 30, 1999, compared to US$72.3
million reported for the same period last year. Earnings for the second
quarter amounted to US$61.7 million, a 37% increase compared to US$44.9
million in net income reported in the second quarter of 1998.
Earnings per share on a fully diluted basis were US$0.66 for the first six
months of 1999, compared to US$0.52 during the same period last year.
Earnings per share on a fully diluted basis for the quarter were US$0.42.
During the quarter the Company also realized a one time pre-tax gain of
US$34.3 million (US$15.5 million after tax) from the sale of its automobile
fleet leasing businesses in Canada and the UK. This sale reduced goodwill
by US$16.9 million.
"For the past four months, management's attention has been focused on moving
forward with our planned alliance with The CIT Group. These quarterly
results, while adversely affected by this important but time-consuming
initiative, are indicative of the resilience and strength that we have built
into Newcourt's commercial and corporate loan origination franchise," noted
Steven K. Hudson, Newcourt's CEO.
Newcourt originated new asset-based financings of US$4.5 billion during the
second quarter of 1999, an increase of 18% from US$3.8 billion reported
during the same period last year. Of the US$4.5 billion in new financings,
US$3.6 billion were generated from Newcourt Financial's activities in the
commercial finance market. The remaining volume of US$0.9 billion was
originated by Newcourt Capital in the corporate finance market.
As a result of continued growth in the Company's loan originations and
increasing use of on-balance sheet funding, tangible leverage increased to
6.2:1 as at June 30, 1999 compared to 5.2:1 as at June 30, 1998.
Total asset finance income for the six months ending June 30, 1999 rose 22%
to US$532.9 million from US$436.8 million during the same period last year.
Operating costs for the period, excluding depreciation and amortization,
amounted to US$333.7 million compared to US$278.7 million for the same period
last year. Expressed as a percentage of average owned and managed assets,
operating expenses on an annualized basis, excluding depreciation and
amortization, were 2.7% as at June 30, 1999, compared to 2.7% at June 30,
1998.
Asset quality is reflected in the Company's arrears and net losses expressed
as percentages of owned assets of 1.5% and 0.74% respectively.
The Board of Directors following the close of business on August 3, 1999,
approved a quarterly dividend of Cdn$0.06 per share for payment on August 31,
1999 to shareholders of record as of August 18, 1999.
Newcourt Credit Group is one of the world's leading sources of asset-based
financing serving the corporate, commercial and institutional markets with
owned and managed assets of US$24.6 billion and a global capability in 26
countries.
This report may contain forward looking statements about the operations,
objectives and strategies of Newcourt. These statements are subject to risks
and uncertainties. Actual results may differ materially due to a variety of
factors including competition, technological change, issues relating to Year
2000 readiness, the global capital markets and general economic conditions in
the U.S., Canada, or internationally. These and other factors should be
considered carefully and readers should not place undue reliance on
Newcourt's forward looking statements.
/more
<PAGE>
Newcourt Credit Group Inc.
Summary of Quarterly Financial Statistics
for the period ended June 30, 1999
(in thousands of United States dollars, unless otherwise stated)
I. Basic Earnings per Share
Average shares outstanding during the period
Number of common shares as at January 1, 1999 148,312,634
Shares issued during the year: June 30, 1999
Shares issued 175,695
Days outstanding 46
Weighted average 44,251
Weighted average of common shares as at June 30, 1999 148,356,885
Net income for the year to date $97,731
Basic earnings per share $0.66
<TABLE>
<CAPTION>
II. Comparative Earnings per Share Summary
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Basic $0.42 $0.32 $0.66 $0.52
Fully diluted 0.42 0.32 0.66 0.52
Cash basis 0.50 0.43 0.82 0.74
Dividends per share(C$) 0.06 0.04 0.12 0.08
III. Balance Sheet Highlights ($ millions)
As at As at
June 30, 1999 March 31, 1999
<S> <C> <C>
Owned and managed assets 24,571.8 25,144
Tangible equity 1,850 1,773
Tangible leverage 6.2:1 6.6:1
</TABLE>
.../more
<PAGE>
<TABLE>
<CAPTION>
IV. Income Statement Highlights ($000)
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income 61,674 44,945 97,731 72,256
New originations 4,476 3,809 9,376 6,732
Originations
U.S. 68.4% 70.4%
Canada 18.2% 17.2%
U.K. / Europe 9.3% 8.7%
Asia Pacific 1.2% 1.3%
South Pacific 1.7% 1.4%
Latin America 1.2% 1.0%
100.0% 100%
V. Margin Analysis Summary ($000)
(i) Securitization Three Months Ended
June 30 March 31
1999 1999
<S> <C> <C>
Securitization gains 51,799 32,437
Assets securitized 1,702,938 1,040,174
Securitization margin 3.04% 3.12%
(ii) Syndication Three Months Ended
June 30 March 31
1999 1999
<S> <C> <C>
Syndication fees 23,025<fn1> 16,820
Assets syndicated 872,277 1,038,952
Syndication margin 2.64% 1.62%
<fn1> excluding income from sale
of equity interests
</fn1>
(iii) Net Finance Income
Finance assets held for investment 9,418,618 8,900,429
Operating leases held for investment
and sale 2,161,323 2,265,632
Finance assets held for sale 1,563,935 2,061,763
Total owned assets 13,143,876 13,227,824
Average total owned assets 13,185,850 12,777,906
Net finance and rental income 112,252 94,676
Net finance income margin 3.41% 2.96%
Interest expense 207,598 199,944
OPEX / Owned and managed assets 2.7% 2.6%
</TABLE>
<PAGE>
Newcourt Credit Group Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
[in thousands of United States dollars]
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
$ $
<S> <C> <C>
ASSETS
Cash 310,774 998,807
Finance assets held for investment 9,418,618 8,611,705
Equipment under operating lease 2,161,323 2,173,514
Finance assets held for sale 1,563,935 1,542,769
Investment in affiliated companies 253,425 194,860
Accounts receivable, prepaids and other 378,515 310,948
Property and equipment, net 120,832 93,874
Goodwill 1,252,337 1,280,036
Future income tax asset 171,696 146,444
Total Assets 15,631,455 15,352,957
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities 682,361 727,468
Debt 11,846,438 11,607,184
Total Liabilities 12,528,799 12,334,652
Shareholders' Equity
Share capital 2,791,553 2,792,861
Retained earnings 311,103 225,444
Total Shareholders' Equity 3,102,656 3,018,305
Total Liabilities and Shareholders' Equity 15,631,455 15,352,957
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Newcourt Credit Group Inc.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
[in thousands of United States dollars, except for per share amounts]
Six Months Ended
June 30, June 30,
1999 1998
$ $
<S> <C> <C>
Asset finance income
Net finance and rental income 206,928 241,551
Securitization gains 84,236 111,659
Syndication fees 69,932 16,090
Management fees and other income 171,818 67,526
Total asset finance income 532,914 436,826
Salaries and wages 182,202 141,869
Operating and administrative 151,534 136,833
Depreciation and goodwill amortization 36,293 37,752
Operating income before income taxes 162,885 120,372
Provision for income taxes 65,154 48,116
Net income for the period 97,731 72,256
Retained earnings, beginning of period 225,444 81,240
Dividends paid on common shares (12,072) (7,194)
Other 0 (135)
Retained earnings, end of period 311,103 146,167
Earnings per common share:
Basic $0.66 $0.52
Fully diluted $0.66 $0.52
</TABLE>
CONSOLIDATED FINANCIAL STATEMENTS
NEWCOURT CREDIT GROUP INC.
(Unaudited)
For the six months ended June 30, 1999
<TABLE>
<CAPTION>
Newcourt Credit Group Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
[in thousands of United States dollars]
June 30, December 31,
1999 1998
<S> <C> <C>
$ $
ASSETS
Cash 310,774 998,807
Finance assets held for investment [Notes 3 and 5] 9,418,618 8,611,705
Equipment under operating lease [Notes 4 and 5] 2,161,323 2,173,514
Finance assets held for sale 1,563,935 1,542,769
Investment in affiliated companies 253,425 194,860
Accounts receivable, prepaids and other 378,515 310,948
Property and equipment, net [Note 6] 120,832 93,874
Goodwill [Note 7] 1,252,337 1,280,036
Future income tax asset 171,696 146,444
Total Assets 15,631,455 15,352,957
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities 682,361 727,468
Debt [Note 8] 11,846,438 11,607,184
Total Liabilities 12,528,799 12,334,652
Shareholders' Equity
Share capital [Note 11] 2,791,553 2,792,861
Retained earnings 311,103 225,444
Total Shareholders' Equity 3,102,656 3,018,305
Total Liabilities and Shareholders' Equity 15,631,455 15,352,957
See accompanying Notes
</TABLE>
<TABLE>
<CAPTION>
Newcourt Credit Group Inc.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
[in thousands of United States dollars, except for per share amounts]
Six Months Ended
June 30, June 30,
1999 1998
<S> <C> <C>
$ $
Asset finance income
Net finance and rental income 206,928 241,551
Securitization gains 84,236 111,659
Syndication fees 69,932 16,090
Management fees and other income [Notes 9 and 10] 171,818 67,526
Total asset finance income 532,914 436,826
Salaries and wages 182,202 141,869
Operating and administrative 151,534 136,833
Depreciation and goodwill amortization [Note 7] 36,293 37,752
Operating income before income taxes 162,885 120,372
Provision for income taxes 65,154 48,116
Net income for the period 97,731 72,256
Retained earnings, beginning of period 225,444 81,240
Dividends paid on common shares (12,072) (7,194)
Other 0 (135)
Retained earnings, end of period 311,103 146,167
Earnings per common share:
Basic $0.66 $0.52
Fully diluted $0.66 $0.52
See accompanying Notes
</TABLE>
<TABLE>
<CAPTION>
Newcourt Credit Group Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
[in thousands of United States dollars]
Six Months Ended
June 30, June 30,
1999 1998
<S> <C> <C>
$ $
OPERATING ACTIVITIES
Net income for the period 97,731 72,256
Adjustments for:
Gain on sale of business units (34,276) 0
Future income taxes (25,329) 38,128
Goodwill amortization, depreciation
and other expense 36,293 37,752
Cash flow from operations 74,419 148,136
Net change in non-cash assets and liabilities (22,165) 60,778
Cash provided by operating activities 52,254 208,914
INVESTING ACTIVITIES
Finance assets, underwritten and purchased (8,320,764) (5,946,879)
Finance assets, sold 4,870,679 3,351,018
Finance assets, repayments and others 2,204,042 1,959,190
Finance assets and assets held for sale (1,246,043) (636,671)
Business dispositions (acquisitions) 339,829 (1,059,892)
Investment in affiliated companies (58,999) (43,048)
Purchase of property and equipment (41,297) (10,886)
Cash used in investing activities (1,006,510) (1,750,497)
FINANCING ACTIVITIES
Issuance of debt 27,931,051 30,611,865
Repayment of debt (27,656,225) (30,558,378)
Issue of common shares, net 3,469 1,468,794
Future tax on share issue costs 0 21,720
Dividends paid on common shares (12,072) (7,194)
Cash provided by financing activities 266,223 1,536,807
Decrease in cash during the period (688,033) (4,776)
Cash, beginning of period 998,807 4,776
Cash, end of period 310,774 0
See accompanying Notes
</TABLE>
1. NATURE OF THE COMPANY'S OPERATIONS
Newcourt Credit Group Inc. (the "Company") is an independent, non-bank
financial services enterprise with operations primarily in the United States,
Canada and Europe. The Company also has supporting operations in Latin
America and Asia. The Company originates, invests in and sells asset-based
financings including secured loans, leases and conditional sales contracts.
For asset-based financings sold to institutional investors the Company
generally continues to manage these financings on behalf of the investors for
a fee. The Company's origination activities focus on the commercial and
corporate finance segments of the asset-based financing market.
The Company originates leases and loans in the commercial finance market
predominantly through vendor finance programs. These agreements are
established with select equipment manufacturers, dealers and distributors to
provide equipment sales and inventory financing. The Company also serves the
corporate finance market through financing services it delivers to major
corporations, public sector institutions and governments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada, consistently applied
("Canadian GAAP").
Effective January 1, 1999, the Company adopted the United States dollar as its
reporting currency to reflect the increased significance of the U.S. currency
in its operations following the acquisition of AT&T Capital Corporation in
1998. Through a translation of convenience, comparative amounts were restated
from Canadian to U.S. dollars using an exchange rate of $0.6443, the rate
prevailing at December 31, 1998.
The more significant accounting policies are summarized below:
Principles of consolidation
The consolidated financial statements of the Company include the accounts of
all its wholly-owned subsidiaries. All material intercompany transactions and
balances have been eliminated.
<PAGE>
The Company accounts for its investment in foreign and domestic affiliates in
which it has significant influence using the equity method.
Finance assets held for investment
Net investment in finance assets is comprised of loans, capital lease
receivables and retained interest in receivables securitized net of an
allowance for credit losses. Income is recognized on finance assets held for
investment on an actuarial basis which produces a constant rate of return on
the investment in finance assets.
Recognition of finance income is generally suspended when, in management's
view, a loss is likely to occur but in no event later than 90 days after an
account has gone into arrears. Accrual is resumed when the receivable becomes
contractually current and management believes there is no longer any
significant probability of loss.
Allowance for credit losses
Repossessed assets are specifically reserved for at their estimated net
realizable value based on estimated collateral values and recoveries under
third party guarantees and vendor support agreements.
Management also routinely assesses the portfolio on an item-by-item basis and
establishes specific allowances for those accounts considered doubtful.
General allowances are established for probable losses on loans which cannot
be determined on an item-by-item basis. This provision is established by
applying historical loss trends to various segments of the portfolio according
to external and internal credit ratings.
Securitization gains
The Company sells certain of its asset-based finance assets to securitization
vehicles.
Securitization transactions are accounted for as sales of finance assets.
These sales are non-recourse to the Company except to the extent of the
Company's retained interest in these securitization vehicles. These
transactions result in the removal of the assets from the Company's
consolidated balance sheets, the recording of assets received and a gain on
sale when the significant risks and rewards of ownership are transferred to
the purchaser. The assets received are generally cash and a retained interest
in the cash flows of the receivables sold. Such retained interest (or
securitization investments) is recorded at estimated fair value and may
include cash collateral accounts, excess spread assets, and securities backed
by the transferred assets. Proceeds on sale are computed as the aggregate of
the initial cash consideration and the present value of any additional sale
proceeds, net of a provision for anticipated credit losses on the securitized
assets and the amount of an arm's length servicing fee.
Income is earned on the securitization investments on an accrual basis. The
carrying value of this asset is reduced, as required, based on changes in the
Company's share of the estimated credit losses and the effects of changes in
the payment rate on the securitized assets. The Company continues to manage
the securitized assets and recognizes income equal to an arm's length
servicing fee over the term of the securitized assets.
Syndication fees
Certain finance assets are underwritten and sold to institutional investors
for cash. These transactions generate syndication fees for the Company. The
Company generally continues to service these assets on behalf of the investors
for a fee. Fees received for syndicating finance assets are included in
income when the related transaction is substantially complete provided the
yield on any portion of the assets retained by the Company is at least equal
to the average yield earned by the other participants involved.
Equipment under operating lease
Equipment under operating lease is generally depreciated over the estimated
useful life of the asset. Depreciation is generally calculated on a straight-
line basis over the term of the lease to the estimated unguaranteed residual
value at the end of the lease term. Rental revenue is recognized on a
straight-line basis over the related lease term.
Estimated unguaranteed residual values
Estimated unguaranteed residual values are established upon acquisition and
leasing of the equipment based upon the estimated value of the equipment at
the end of the lease term. Values are determined on the basis of studies
prepared by the Company, historical experience and industry data. Although it
is reasonably possible that a change in the unguaranteed residual values could
occur in the near term, the Company actively manages its residual values by
communicating with lessees and vendors during the lease term to encourage
lessees to extend their leases or upgrade and enhance their leased equipment.
Residual values are continually reviewed and monitored by the Company.
Declines in residual values for capital leases are recognized as an immediate
charge to income. Declines in residual values for operating leases are
recognized as adjustments to depreciation expense over the shorter of the
useful life of the asset or the remaining term of the lease.
Deferred costs
Direct incremental costs of acquisition of finance assets and operating leases
are deferred and amortized over the shorter of the term of the finance asset
or operating lease and the expected period of future benefit. As finance
assets are securitized, the unamortized portion of the acquisition costs
related to the assets being securitized is expensed. Costs incurred during
the pre-operating period of new business ventures are deferred and amortized
over the expected period of future benefit.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided on a straight-line basis at the following rates:
Buildings 20 years
Furniture and fixtures 10 years
Computers and office equipment 5 years
Goodwill
Goodwill is recorded at cost less accumulated amortization. The Company's
amortization periods for goodwill range from 20 to 35 years. The valuation
and amortization of goodwill is evaluated on an ongoing basis and, if
considered permanently impaired, goodwill is written down. The determination
as to whether there has been an impairment in value is made by comparing the
carrying value of the goodwill to the projected undiscounted net revenue
stream to be generated by the related activity.
Foreign currency translation
The Company's foreign operations function financially and operationally
independent of the parent and therefore are considered, for the purposes of
foreign currency translation, to be self-sustaining operations. As a result,
the assets and liabilities of the Canadian and non-United States foreign
operations are translated into United States dollars at rates in effect at the
consolidated balance sheet dates. Revenue and expenses are translated at the
average exchange rates prevailing during the period. Unrealized foreign
exchange currency translation gains and losses on these self-sustaining
operations are included in share capital.
Income taxes
The Company accounts for income taxes using the liability method of income tax
allocation.
Earnings per common share
Basic earnings per common share is computed based on the weighted average
number of common shares outstanding during the year. Fully diluted earnings
per common share has been computed based on the weighted average number of
common shares outstanding after giving effect to the exercise of all
outstanding dilutive options to acquire common shares and any other dilutive
items.
Derivative financial instruments
The Company uses derivative financial instruments in conjunction with its
interest rate and currency risk management strategies. Derivative financial
instruments are used to hedge exposure to interest rate and foreign exchange
rate risk arising during the normal course of business. Contract and notional
amounts associated with derivative financial instruments are not recorded as
assets or liabilities on the consolidated balance sheets. The most frequently
used derivative financial instruments are various types of interest rate swaps
and foreign exchange contracts. Currency swaps and bond forwards are also
used.
Swaps and forward contracts are accounted for on the accrual basis when cash
flows of the derivatives are matched to a specific on-balance sheet position.
Net accrued interest receivable/payable and deferred losses/gains are recorded
in accounts receivable, prepaids and others or accounts payable and accrued
liabilities, as appropriate. Realized losses/gains on terminated contracts
are deferred and amortized over the remaining life of any applicable
corresponding position.
Foreign exchange contracts are used to hedge the Company's net investment in
certain of its self sustaining operations. Gains and losses on these foreign
exchange contracts are credited or charged to the cumulative translation
adjustment account.
When a derivative financial instrument is no longer designated as a hedge, any
gain or loss on the contract is recognized in income immediately.
Use of estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and
expense during the reporting period. Actual results could differ from those
estimates. Significant areas in which estimates are used include residual
values, income taxes, retained interests in securitized assets and related
reserves, allowance for credit losses, valuation of finance assets held for
sale, restructuring reserves and contingencies.
<TABLE>
<CAPTION>
3. FINANCE ASSETS HELD FOR INVESTMENT
Finance assets held for investment consist of:
June 30, December 31,
1999 1998
<S> <C> <C>
$ $
Leases 3,726,937 3,963,620
Estimated unguaranteed residual values 900,278 883,194
Unearned Income (729,022) (954,496)
Net leases 3,898,193 3,892,318
Loans 4,969,008 4,304,369
Allowance for credit losses (199,317) (183,693)
Securitization investments 750,734 598,711
Finance assets held for investment 9,418,618 8,611,705
Substantially all of the finance assets held for investment bear interest at
varying levels of fixed rates of interest.
The loans included in finance assets held for investment are collateralized.
4. EQUIPMENT UNDER OPERATING LEASE
Equipment under operating lease consists of:
June 30, December 31,
1999 1998
<S> <C> <C>
$ $
Original equipment cost:
Information technology 1,403,670 1,452,677
Telecommunications 646,801 531,572
Transportation 381,605 581,655
Manufacturing 408,855 348,801
Healthcare 40,154 30,450
General equipment and other 436,999 289,596
3,318,084 3,234,751
Less: accumulated depreciation (1,214,569) (1,117,993)
Rental receivables, net 57,808 56,756
Equipment under operating lease 2,161,323 2,173,514
</TABLE>
<TABLE>
<CAPTION>
5. ALLOWANCE FOR CREDIT LOSSES
An analysis of the Company's allowance for credit losses is as follows:
June 30, December 31,
1999 1998
<S> <C> <C>
$ $
Finance assets held for investment and equipment under
operating lease 11,579,941 10,785,219
Allowance for credit losses, beginning of period 183,693 24,846
Provision for credit losses during the period 58,410 96,141
Provision for credit losses from acquisition, net of sales 0 132,022
Write-offs, net of recoveries (42,786) (69,316)
Allowance for credit losses, end of period 199,317 183,693
Allowance as a percentage of investment assets 1.7% 1.7%
Investment assets in arrears (90 days and over) 172,104 143,620
Arrears as a percentage of investment assets 1.5% 1.3%
Assets in repossession, at estimated net realizable value 151,415 84,540
</TABLE>
<TABLE>
<CAPTION>
6. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
June 30, 1999 December 31, 1998
Accumulated Accumulated
Cost depreciation Cost depreciation
<S> <C> <C> <C> <C>
$ $ $ $
Land and buildings 39,073 17,640 28,842 16,309
Furniture and fixtures 63,404 28,741 55,070 26,702
Computers and office equipment 116,457 54,766 103,231 53,420
Other 3,901 856 3,910 748
222,835 102,003 191,053 97,179
Net book value 120,832 93,874
</TABLE>
<TABLE>
<CAPTION>
7. GOODWILL
Goodwill amortization during the period was $23,205 [1998 - $30,324].
8. DEBT
Debt consists of the following:
June 30, December 31,
1999 1998
<S> <C> <C>
$ $
Fixed Rate Debt
U.S. senior notes, bearing interest at rates varying from
6.84% to 8.26%, maturing in the years 2000 to 2005 1,499,614 503,504
Medium term notes, bearing interest at rates varying from
5.00% to 9.34%, maturing in the years 1999 to 2007 597,034 581,004
U.S. medium term notes, bearing interest at rates varying
from 5.61% to 8.25%, maturing in the years 1999 to 2028 6,041,752 6,126,500
7.625% debenture, maturing in June, 2001 84,660 80,446
6.45% debenture, maturing in June, 2002 101,586 96,535
Collateralized borrowings related to securitized
assets, 5.50%, maturing in 2003 102,864 122,873
Capital lease obligations, discounted at rates varying from
5.70% to 13.50%, maturing in 2004 221,701 258,602
Other fixed rate debt 381,185 338,321
Floating Rate Debt
Floating rate U.S. medium term notes, interest rate ranges
from 4.89% to 6.75%, maturing in the years 1999 to 2002 1,040,250 1,350,322
Collateralized borrowings relating to securitized assets,
based upon one month LIBOR plus 0.125%, maturing in 2001 48,815 65,674
Floating rate medium term notes, interest periodically reprices
based upon CDOR index, maturing in the year 2000 67,790 64,430
Commercial paper and other short-term borrowings 1,659,187 2,018,973
Total debt 11,846,438 11,607,184
</TABLE>
Interest expense on the debt outstanding during the period was $407,542
[1998 - $293,026].
The Company renegotiated its various bank facilities in April 1998 to
support the existing commercial paper programs and for general corporate
purposes.
The U.S. bank facility was increased to $2.3 billion with $1.535 billion
having a term of 364 days and $765 million having a term of five years. In
addition, the Canadian bank facility was increased to Cdn. $1.2 billion with a
term of 364 days. The amount of unused Canadian and U.S. bank facilities are
Cdn. $1.0 billion [1998 - Cdn. $0.3 billion] and $2.3 billion [1998 - $2.3
billion], respectively.
In April 1999, the Company renewed its various bank facilities to support the
existing commercial paper programs and for general corporate purposes. The
terms and conditions remained unchanged with the exception of the Canadian
facility, which was renewed at Cdn. $1.0 billion with a term of 364 days.
The weighted average interest on commercial paper outstanding as at June 30,
1999 is 4.85% [1998 - 4.91%] for the Canadian commercial paper program, 5.65%
[1998 - 6.02%] for the U.S. commercial paper program and 5.03% [1998 - nil]
for the Australian program.
In connection with the purchase of AT&T Capital, the Company unconditionally
guarantees the debt and liquidity facilities of AT&T Capital as to payment of
principal and interest, when and as this debt shall become due and payable,
whether at maturity or otherwise. Also, AT&T Capital entered into an
agreement whereby it guarantees certain indebtedness and liquidity facilities
of the Company.
9. OTHER INCOME
During the first quarter, the Company recorded a pre-tax gain of $56,582
(after-tax gain of $31,120) resulting from the extinguishment of certain
derivative financial instruments. During 1998, the Company had derivative
financial instruments in place to hedge the Company's net investment in
certain of its foreign self-sustaining operations to Canadian dollars (the
"1998 Derivatives"), its reporting currency in 1998. Effective January 1,
1999, the Company adopted the United States dollar as its reporting currency.
Accordingly, on that date, the Company determined that all non-U.S. dollar
functional self-sustaining operations would be hedged to the U.S. currency and
that the 1998 Derivatives would be terminated. The 1998 Derivatives were
unwound over several weeks in early 1999 to minimize the Company's liability
or maximize its receivables from counterparties without exposing the Company
to undue risk. Since the 1998 Derivatives were no longer designated as hedges
during 1999, any gains or losses must be immediately recognized in earnings.
10. SALE OF AUTOMOTIVE LEASING UNITS
During the period, the Company disposed of two automotive leasing units, based
in Canada and the United Kingdom. Under the terms of the sales, the total
consideration was $339,829 cash. Total assets sold were $337,493 and total
liabilities sold were $31,940 resulting in a gain of $34,276 ($15,451 after
tax).
11. SHARE CAPITAL
Authorized -
The Company's authorized share capital consists of the following:
[i] Unlimited common shares with voting rights;
[ii] Unlimited special shares without voting rights convertible into common
shares on a share-for-share basis; and
[iii] Unlimited Class A preference shares issuable in series.
<TABLE>
<CAPTION>
June 30, 1999
Outstanding -
The following is a summary of the changes in share capital during the period:
June 30, December 31,
1999 1998
<S> <C> <C> <C> <C>
# $ # $
Subscription rights
Outstanding, beginning of period 0 0 38,500,000 1,132,997
Exchange for common shares 0 0 (38,500,000) (1,132,997)
Outstanding, end of period 0 0 0 0
Common shares
Outstanding, beginning of period 148,312,634 2,751,233 83,070,958 758,282
Shares issued for subscription rights 0 0 38,500,000 1,111,974
Shares issued for warrants 0 0 8,668,446 368,929
Issued on acquisition 0 0 17,633,857 508,995
Stock options exercised 92,762 904 417,492 2,152
Others 82,933 2,565 21,881 901
Outstanding, end of period 148,488,329 2,754,702 148,312,634 2,751,233
Total 148,488,329 2,754,702 148,312,634 2,751,233
Unrealized foreign
currency translation adjustment 0 36,851 0 41,628
Total share capital 148,488,329 2,791,553 148,312,634 2,792,861
</TABLE>
Public Offerings
On January 12, 1998, the subscription rights were exchanged for 38,500,000
common shares at Cdn. $46.00 per share.
On June 4, 1998, all of the special warrants outstanding were exercised
without additional payment.
Treasury Issue
On January 12, 1998, the Company completed a private placement of 17,633,857
common shares at $31.19 per share for proceeds of $550,000.
On May 20, 1998, the Company completed a private placement of 8,668,446
special warrants at $46.14 per warrant. Each special warrant entitled the
holder thereof to acquire one common share of the Company.
12. FINANCE ASSETS UNDER MANAGEMENT
Included in finance assets under management are finance assets which have been
securitized or syndicated by the Company and are not reflected on the
consolidated balance sheets.
Securitized finance assets are described in Note 2. Syndicated finance assets
are assets which have been sold to investors without recourse or credit
enhancement.
<TABLE>
<CAPTION>
Finance assets under management are as follows:
June 30, December 31,
1999 1998
<S> <C> <C>
$ $
Securitized finance assets 8,990,845 9,000,658
Syndicated finance assets 1,753,436 1,396,230
Syndicated finance assets of affiliated companies 430,220 416,265
Total 11,174,501 10,813,153
</TABLE>
13. SUMMARIZED FINANCIAL INFORMATION OF AT&T CAPITAL CORPORATION
The table below shows summarized consolidated financial information for AT&T
Capital, an indirect wholly-owned subsidiary of the Company. The Company has
guaranteed ("Guarantee") on a full and unconditional basis the existing
registered debt securities and certain other indebtedness of AT&T Capital.
The Company has not disclosed financial statements or other information
regarding AT&T Capital on a stand-alone basis since management does not
believe that it is material to debt holders due to the Guarantee.
The following summarized consolidated financial information for AT&T Capital
has been prepared in accordance with accounting principles generally accepted
in Canada.
<TABLE>
<CAPTION>
Six months ended
June 30, 1999 June 30, 1998
<S> <C> <C>
$ $
Total asset finance income 254,066 306,007
Operating expenses 171,602 241,585
Operating income before taxes 82,464 64,422
Net income for the period 50,788 31,235
June 30, 1999 December 31, 1998
<S> <C> <C>
$ $
ASSETS
Cash 201,657 1,011,409
Finance assets held for investment 4,308,279 4,759,564
Equipment under operating lease 1,506,339 1,565,379
Finance assets held for sale 116,887 177,049
Receivables from affiliates and other assets 4,307,883 3,276,167
Total Assets 10,441,045 10,789,568
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Debt 8,916,534 9,280,639
Accrued liabilities 545,935 582,122
Total Liabilities 9,462,469 9,862,761
Total Shareholder's Equity 978,576 926,807
Total Liabilities and Shareholder's Equity 10,441,045 10,789,568
</TABLE>
Included in the first six months of 1999 total asset finance income is $78.2
million (1998 - $24.6 million) of interest income related to intercompany
receivables due from certain subsidiaries of the Company.
Total asset finance income decreased in the first six months of 1999 compared
to the same period in 1998 due mainly to the sale of various portions of the
international businesses of AT&T Capital to the Company at their approximate
book value. The assets relating to these businesses approximated $1,178.4
million. Increased securitization volume in the second half of 1998 also
contributed to the decrease in finance revenue.
Included in receivables from affiliates and other assets is $3.8 billion as at
June 30, 1999 (1998 - $2.9 billion) of intercompany receivables due from
certain subsidiaries of the Company.
The purchase price the Company paid for AT&T Capital has not been "pushed
down" to AT&T Capital's stand-alone financial statements; however, these
statements reflect the adoption of the accounting policies and procedures of
the Company.
14. MERGER WITH THE CIT GROUP INC.
On March 8, 1999, the Company announced that it would be acquired by The CIT
Group Inc. ("CIT") through an exchange of common stock. Under the terms of
the transaction each outstanding share of the Company's common stock will be
exchanged for 0.92 shares of CIT. Under an amended and restated agreement and
plan of reorganization dated August 5, 1999, the Company and CIT reached
agreement that the Company's common stock would be exchanged for 0.70 shares
of CIT as well as the elimination of certain closing conditions. The
transaction is expected to close during the fourth quarter of 1999, and is
conditional upon regulatory and shareholder approval. CIT is headquartered in
Livingston, New Jersey, USA. CIT is a leading diversified finance
organization offering secured commercial and consumer financing primarily in
the United States.
15. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
Year 2000 as 1900 or some other date, resulting in errors when information
using Year 2000 dates is processed. In addition, similar problems may arise
in some systems which use certain dates in 1999 to represent something other
than a date. The effects of the Year 2000 Issue may be experienced before,
on, or after January 1, 2000 and, if not addressed, the impact on operations
and financial reporting may range from minor errors to significant systems
failure which could affect an entity's ability to conduct normal business
operations. It is not possible to be certain that all aspects of the Year
2000 Issue affecting the Company, including those related to the efforts of
customers, suppliers, or other third parties, will be fully resolved.
16. FOREIGN EXCHANGE RATES
The following Canadian to U.S. dollars exchange rates were used during the
period:
December 31, 1998 0.6443
June 30, 1999 0.6779
Average for first six months of 1999 0.6701
17. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified from
statements previously presented to conform to the presentation of the 1999
consolidated financial statements.
