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<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 18, 1998
AT&T CAPITAL CORPORATION
A Delaware Commission File I.R.S. Employer
Corporation No. 1-11237 No. 22-3211453
44 Whippany Road, Morristown, New Jersey 07962-1983
Telephone Number (973) 397-3000
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Form 8-K/A February 18, 1998
Item 7 (c) of Current Report on Form 8-K of AT&T Capital Corporation dated
February 9, 1998 is hereby amended to read in full as follows (and, in
connection therewith, to reflect all the conformed signatures in Exhibit 10(a)
entitled "Support Agreement dated February 9, 1998 between Newcourt Credit Group
Inc. and AT&T Capital Corporation", to add Exhibit 23(a) entitled "Consent of
Independent Auditors - Ernst & Young" and to add Exhibit 23(b) "Consent of
Independent Auditors - Coopers & Lybrand L.L.P.", to amend Exhibit 99(a)
entitled "Listing of Certain Debt Securities of Newcourt Credit Group Inc. as
of December 31, 1997", to amend Exhibit 99(d) entitled "The audited consolidated
financial statements of Newcourt Credit Group Inc. as of, and for the years
ended, December 31, 1997 and 1996", and to add Exhibit 99(e) entitled "Letter
from Independent Public Accountants - Arthur Andersen LLP", filed herewith):
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
10(a) Support Agreement dated February 9,1998 between Newcourt
Credit Group Inc. and AT&T Capital Corporation.
23(a) Consent of Independent Auditors - Ernst & Young.
23(b) Consent of Independent Auditors - Coopers & Lybrand L.L.P.
99(a) Listing of Certain Debt Securities of Newcourt Credit
Group Inc. as of December 31, 1997.
99(b) Press Release issued by Newcourt Credit Group Inc. on
February 4, 1998.*
99(c) Prospectus dated November 24, 1997 of Newcourt Credit Group
Inc. relating to Cdn. $460,000,000 Fully Paid
Subscription Rights, each representing the right to
receive one Common Share of Newcourt Credit Group Inc.*
99(d) The audited consolidated financial statements of Newcourt
Credit Group Inc. as of, and for the years ended,
December 31, 1997 and 1996.
99(e) Letter from Independent Public Accountants - Arthur
Andersen LLP.
* Previously filed as an Exhibit to Current Report on Form 8-K
of AT&T Capital Corporation dated February 9, 1998 amended
hereby.
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Form 8-K/A February 18, 1998
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.
AT&T CAPITAL CORPORATION
/s/ Glenn A. Votek
_______________________________
By: Glenn A. Votek
Vice President and
Treasurer
March 4, 1998
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Form 8-K/A February 18, 1998
EXHIBIT INDEX
Exhibit
10(a) Support Agreement dated February 9, 1998 between Newcourt
Credit Group Inc. and AT&T Capital Corporation.
23(a) Consent of Independent Auditors - Ernst & Young.
23(b) Consent of Independent Auditors - Coopers & Lybrand L.L.P.
99(a) Listing of Certain Debt Securities of Newcourt Credit
Group Inc. as of December 31, 1997.
99(b) Press Release issued by Newcourt Credit Group Inc. on
February 4, 1998.*
99(c) Prospectus dated November 24, 1997 of Newcourt Credit
Group Inc. relating to Cdn. $460,000,000 Fully Paid
Subscription Rights, each representing the right to
receive one Common Share of Newcourt Credit Group Inc.*
99(d) The audited consolidated financial statements of Newcourt
Credit Group Inc. as of, and for the years ended,
December 31, 1997 and 1996.
99(e) Letter from Independent Public Accountants - Arthur
Andersen LLP.
* Previously filed as an Exhibit to Current Report on Form 8-K
of AT&T Capital Corporation dated February 9, 1998 amended
hereby.
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AT&T CAPITAL CORPORATION
SUPPORT AGREEMENT
SUPPORT AGREEMENT ("Agreement"), dated as of the 9th day of
February, 1998, between NEWCOURT CREDIT GROUP INC., an Ontario corporation
("Newcourt"), and AT&T CAPITAL CORPORATION, a Delaware corporation ("Capital").
W I T N E S S E T H:
WHEREAS, Newcourt directly or indirectly owns at least a
majority of the outstanding voting common stock of Capital;
WHEREAS, Capital plans from time to time to incur, assume or
guarantee Debt (as defined below) and has heretofore incurred, assumed or
guaranteed Debt, including Debt that is currently outstanding; and
WHEREAS, Newcourt and Capital desire to provide certain
agreements as to the stock ownership and net worth of Capital and the
availability of funds to Capital in conjunction with the incurrence, assumption
or guarantee of Debt by Capital and the ownership or continued ownership of
currently outstanding Debt of Capital by the holders thereof;
WHEREAS, in conjunction with the execution and delivery of
this Agreement, certain outstanding indebtedness for borrowed money of Newcourt
is being guaranteed by Capital;
NOW, THEREFORE, for good and adequate consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions. For the purposes of this Agreement,
the following terms shall have the definitions assigned to them below:
(a) "Debt" shall mean (i) any indebtedness for borrowed money
incurred by Capital from any Person and (ii) indebtedness for borrowed money of
any Person to another Person assumed or guaranteed by Capital; provided that
neither of the following shall constitute Debt for purposes of this Agreement:
(x) any indebtedness for borrowed money incurred, assumed or guaranteed from
time to time by Capital which indebtedness (or, in the case of a guaranty
thereof, such guaranty), by the terms of the instruments evidencing such
indebtedness (or guaranty) or any indenture or similar instrument relating
thereto, is not entitled to the benefit of this Agreement; and (y) any
indebtedness for borrowed money (howsoever arising, including without limitation
by way of securitization or syndication transactions) incurred, assumed or
guaranteed from time to time by Capital which indebtedness (or, in the case of a
guaranty thereof, such guaranty) is secured by a pledge, mortgage, security
interest or lien on, or payable solely from the income and proceeds of, any
property (including, without limiting the generality of such term, any shares of
stock, other equity
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interests, debt, intangible assets or tangible assets) of Capital or any direct
or indirect subsidiary thereof and which indebtedness (or guaranty) is not a
general obligation of Capital.
(b) "Person" shall mean any individual, corporation,
partnership, trust, association or other entity of any kind.
2. Stock Ownership. At all times while this Agreement is in
effect, Newcourt (i) will directly or indirectly own and hold the legal title to
and beneficial interest in a majority of the outstanding shares of capital stock
of Capital having voting power for the election of members of the Board of
Directors of Capital (other than shares having such power only by reason of the
occurrence of a contingency) and (ii) will not directly or indirectly sell,
exchange, transfer, pledge or in any way encumber or otherwise dispose of any
such majority shares of capital stock except, in the case of either clause (i)
or (ii), to the extent required to dispose of any such majority shares of
capital stock pursuant to a court decree or order of any governmental authority
which, in the opinion of the general counsel of or outside counsel to Newcourt,
more likely than not may not be successfully challenged.
3. Maintenance of Tangible Net Worth. At all times while this
Agreement is in effect, Newcourt will cause Capital and its subsidiaries to have
a consolidated tangible net worth (as determined in accordance with generally
accepted accounting principles consistently applied as in effect from time to
time and reflected in the consolidated balance sheet of Capital) of at least
$1.00.
4. Maintenance of Liquidity. At all times while this Agreement
is in effect, if Capital is unable to make timely payment of any principal,
interest or premium in respect of any Debt, Newcourt shall, at Capital's
request, provide (or cause to be provided) to Capital on a timely basis, funds
(which, if provided by Newcourt or any subsidiary of Newcourt, may be provided
as an equity contribution, as a loan or otherwise, in each case, as elected by
Newcourt) sufficient to make such payment.
5. Waiver. Newcourt hereby waives any failure or delay on the
part of Capital in asserting or enforcing any of its rights or in making any
claims or demands hereunder; provided that, in any case, Newcourt shall have no
obligation under paragraph 4 hereof unless and until the request referred to
therein is made.
6. Amendment and Termination. This Agreement may be amended or
terminated by the parties hereto at any time in writing; provided that, so long
as any series of Debt (or, if not issued as a series, any other Debt) incurred,
assumed or guaranteed by Capital prior to such amendment or termination remains
outstanding, no such amendment which adversely affects the holders of such
series of Debt (or, if not issued as a series, such other Debt) or any such
termination shall become effective with respect to such series of Debt (or such
other Debt) unless (i) at least two nationally recognized statistical rating
agencies that have rated such series of Debt (or such other Debt) prior to such
amendment or termination confirm in writing that their ratings for such series
of Debt (or such other Debt) in effect immediately prior to such amendment or
termination will not be downgraded as a result of such amendment or termination
(or, in the case of any such series of Debt
2
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(or such other Debt) that is not so rated, such series of Debt (or such other
Debt) shall be treated in the same manner as any series of similar Debt (or
other similar Debt) that is so rated); or (ii) such series of Debt (or such
other Debt) shall have been defeased in accordance with the provisions of the
instrument evidencing such series of Debt (or such other Debt) or any indenture
or similar instrument relating thereto; or (iii) the holders of at least a
majority of the outstanding principal amount of such series of Debt consent (or,
with respect to any Debt not issued as a series, the holder of such Debt
consents) in writing to such amendment or termination.
7. Rights of Holders of Debt. All holders of Debt incurred,
assumed or guaranteed by Capital during the term of this Agreement or incurred,
assumed or guaranteed by Capital prior to the date hereof shall be intended
third-party beneficiaries of this Agreement; provided that the third-party
beneficiary rights of any such holder shall be limited to (i) the right to
demand that Capital enforce Capital's rights under paragraphs 2, 3 and 4 of this
Agreement and (ii) the right to proceed against Newcourt on behalf of Capital to
enforce Capital's rights under paragraphs 2, 3 and 4 of this Agreement for the
benefit of Capital if Capital fails or refuses to take timely action to enforce
Capital's rights hereunder following demand for such enforcement by such holder.
8. Not a Guaranty. Notwithstanding any other provision of this
Agreement, this Agreement, its provisions and any actions taken pursuant hereto
by Newcourt shall not constitute or be deemed to constitute a direct or indirect
guaranty by Newcourt of any Debt or other obligation or liability of any kind or
character whatsoever of Capital, and no holder of any such Debt, obligation or
liability shall have any right to proceed directly against Newcourt to obtain
any amount due with respect to any such Debt, obligation or liability including,
without limitation, any principal thereof or interest or premium thereon.
9. Successors or Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns.
10. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York
(excluding its rules regarding conflicts of laws other than as set forth in
Section 5-1401 of the New York General Obligations Law).
3
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IN WITNESS WHEREOF, Newcourt and Capital have executed and
delivered this Agreement as of the day and year first above written.
NEWCOURT CREDIT GROUP INC.
ATTEST:
By Daniel A. Jauernig
__________________________________
Charles L. Halam-Andres By Geoffrey A. Ichii
_______________________ __________________________________
AT&T CAPITAL CORPORATION
ATTEST:
By Glenn A. Votek
__________________________________
Glen J. DuMont By Elizabeth A. Kettenstock
________________________ __________________________________
4
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Exhibit 23(a)
AT&T Capital Corporation
Consent of Independent Auditors
We consent to the use of our report dated February 4, 1998 on the
consolidated financial statements of Newcourt Credit Group Inc.
as at December 31, 1997 and 1996 and for the years then ended
included in the Current Report on Form 8-K of AT&T Capital
Corporation dated February 9, 1998 (as amended by a Current
Report on Form 8-K/A of AT&T Capital Corporation dated February
11, 1998), the Current Report on Form 8-K/A of AT&T Capital
Corporation dated February 11, 1998 and to the incorporation by
reference of such report into Registration Statement No.
333-18367 of AT&T Capital Corporation.
Signed Ernst & Young
Toronto, Canada Chartered Accounts
February 11, 1998
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Exhibit 23(b)
AT&T Capital Corporation
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statement of
AT&T Capital Corporation on Form S-3 (File no. 333-18367) of our report dated
March 6, 1997, on our audits of the consolidated financial statements of AT&T
Capital Corporation as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995 and 1994, which report is included in this Report on
Form 8-K/A.
COOPERS & LYBRAND L.L.P.
1301 Avenue of the Americas
New York, New York
February 18, 1998
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Listing of Certain Debt Securities of Newcourt Credit Group Inc.
as of December 31, 1997
<TABLE>
<CAPTION>
Description Cdn. $ Cdn. $
<S> <C> <C>
U.S. Unsecured Senior Notes (U.S. $)
bearing interest varying from 6.95% to 7.12%
and maturing in years 2000 to 2005 149,011,200
U.S. Unsecured Senior Notes (U.S. $)
bearing interest at 8.26%
and maturing in year 2005 143,280,000
-----------
292,291,200
Medium Term Notes (Cdn. $)
bearing interest varying from 4.40% to 9.34%
and maturing in years 1998 to 2007 958,493,000
Debenture (Cdn. $)
bearing interest at 7.625% and maturing June, 2001 124,802,000
Debenture (Cdn. $)
bearing interest at 6.45% and maturing June, 2002 149,782,000
-----------
1,233,077,000
Commercial Paper and Other Short-Term Borrowings
U.S. Bank Facility (U.S. $) 143,280,000
Commercial Paper (U.S. $) 318,977,152
-----------
462,257,152
-----------
total 1,987,625,352
</TABLE>
Note: U.S. dollars are converted to Canadian dollars (where applicable)
using an exchange rate of 1.4328 Cdn. $ to 1.00 U.S. $.
Page 1
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Exhibti 99(d)
AT&T Capital Corporation
- -----------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
NEWCOURT CREDIT GROUP INC.
For the years ended December 31, 1997 and December 31, 1996
[LOGO]
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- --------------------------------------------------------------------------------
AUDITORS' REPORT
- --------------------------------------------------------------------------------
To the Shareholders of
NEWCOURT CREDIT GROUP INC.
We have audited the consolidated balance sheets of NEWCOURT CREDIT GROUP INC. as
at December 31, 1997 and 1996 and the consolidated statements of income and
retained earnings and cash flows for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 1997
and 1996 and the results of its operations and the changes in its financial
position for the years then ended in accordance with accounting principles
generally accepted in Canada.
Toronto, Canada Ernst & Young
February 4, 1998 Chartered Accountants
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Newcourt Credit Group Inc.
CONSOLIDATED BALANCE SHEETS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As at December 31
1997 1996
<S> <C> <C>
$ $
- -----------------------------------------------------------------------
ASSETS
Cash and short term investments 7,413 51,184
Cash held in escrow [note 21] 1,771,000 --
Investment in finance assets [note 3] 2,461,401 1,072,277
Assets held for securitization and
syndication [note 4] 1,091,398 774,000
Investment in affiliated companies [note 5] 173,918 162,308
Accounts receivable, prepaids and other 181,736 58,469
Fixed assets [note 6] 87,396 40,859
Goodwill at cost, net of accumulated
amortization of $11,961; 1996 - $2,861
[note 7] 408,754 54,279
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Total Assets 6,183,016 2,213,376
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities 303,968 93,338
Debt [note 9] 2,789,816 1,592,026
Future income tax liability [Note 12] 27,739 12,078
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Total Liabilities 3,121,523 1,697,442
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Shareholders' Equity
Share capital [note 10] 2,935,402 415,160
Retained earnings 126,091 100,774
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Total Shareholders' Equity 3,061,493 515,934
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Total Liabilities and Shareholders' Equity 6,183,016 2,213,376
- -----------------------------------------------------------------------
See accompanying notes
</TABLE>
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Newcourt Credit Group Inc.
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
[in thousands of Canadian dollars, except for per share amounts]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
1997 1996
<S> <C> <C>
$ $
- -------------------------------------------------------------------------
Fee and affiliate income
Securitization and syndication fees
[note 4] 188,837 87,506
Net income from affiliated companies
[notes 5 & 9] 9,552 8,549
Management and other fees 35,697 23,148
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234,086 119,203
Net finance income [note 9] 84,349 52,386
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Total asset finance income 318,435 171,589
Selling, general and other operating expenses 178,934 101,738
Depreciation and amortization 20,427 5,701
- -------------------------------------------------------------------------
Operating income before restructuring charges
and taxes 119,074 64,150
Restructuring charges [note 8] 103,000 --
- -------------------------------------------------------------------------
Operating income before income taxes 16,074 64,150
Provision for (recovery of) income taxes [note 12](20,347) 13,469
- -------------------------------------------------------------------------
Net income for the year 36,421 50,681
Retained earnings, beginning of year 100,774 56,942
Dividends paid on common and special shares (10,004) (6,685)
Options purchased [note 11] (1,100) (164)
- -------------------------------------------------------------------------
Retained earnings, end of year 126,091 100,774
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Earnings per common share [note 8]:
Basic $0.52 $0.96
Fully diluted $0.52 $0.96
- -------------------------------------------------------------------------
See accompanying notes
</TABLE>
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Newcourt Credit Group Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years ended December 31
1997 1996
<S> <C> <C>
$ $
- --------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income for the year 36,421 50,681
Add items not requiring an outlay of cash
Restructuring charges 74,225 --
Deferred income taxes (23,516) 7,798
Depreciation and amortization 20,427 5,701
- --------------------------------------------------------------------------------
Cash flow from operations 107,557 64,180
Net change in non-cash assets and liabilities
related to operations (130,332) 26,881
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Cash provided by (used in) operating
activities (22,775) 91,061
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INVESTING ACTIVITIES
Finance assets, underwritten and purchased (6,033,608) (4,491,880)
Finance assets, securitized and syndicated 4,336,050 2,844,220
Finance assets, repayments and others 1,079,027 796,692
- --------------------------------------------------------------------------------
Finance assets and assets held for
securitization and syndication (618,531) (850,968)
Business acquisitions (621,902) --
Investment in affiliated companies 8,821 (99,485)
Purchase of fixed assets (35,992) (24,772)
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Cash used in investing activities (1,267,604) (975,225)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Debt issued, net 785,765 512,834
Issue of common shares, net 453,635 231,604
Deferred tax on share issues 18,312 (4,696)
Dividends paid on common and special shares (10,004) (6,685)
Options purchased (1,100) (164)
- --------------------------------------------------------------------------------
Cash provided by financing activities 1,246,608 732,893
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Decrease in cash and short term investments
during the year (43,771) (151,271)
Cash and short term investments, beginning
of year 51,184 202,455
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Cash and short term investments, end of year 7,413 51,184
- --------------------------------------------------------------------------------
See accompanying notes
</TABLE>
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Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
December 31, 1997
1. NATURE OF THE COMPANY'S OPERATIONS
The Company is an independent, non-bank financial services
enterprise with operations primarily in Canada and the United
States and has recently expanded its operations in the United
Kingdom and Australia. The Company originates, sells and manages
asset-based financing by way of secured loans, leases and
conditional sales contracts. Generally, the Company retains an
interest in the financings it originates. The loan origination
activities focus on the commercial and corporate finance segments
of the asset-based lending market.
The Company originates loans in the commercial finance market
through vendor finance programs. These agreements are established
with select equipment manufacturers, dealers and distributors to
provide equipment sales and inventory financing. The Company
serves the corporate finance market through financing services it
delivers via vendors 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
("Canadian GAAP"). Except as indicated in Note 20, these
consolidated financial statements conform, in all material
respects, with accounting principles generally accepted in the
United States ("U.S. GAAP"). 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 inter-company
transactions and balances have been eliminated.
1
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Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Investment in finance assets
Investment in finance assets is comprised of loans, the aggregate
of finance lease receivables less unearned income and long term
securitization receivable. Earned lease income is recognized on
an actuarial basis which produces a constant rate of return on the
net investment in the leases.
Recognition of interest income is 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.
Deferred costs
Direct incremental costs of acquisition of finance assets and of
investing in affiliated companies are deferred and amortized over
the expected period of future benefit. Costs incurred during the
pre-operating period of new business ventures are deferred and
amortized over the expected period of future benefit.
Allowance for credit losses
Losses on finance assets and the carrying value of repossessed
assets are determined by discounting at the rate of interest
inherent in the original asset the expected future cash flows of
the finance assets including realization of collateral values and
estimated recoveries under third party guarantees and vendor
support agreements.
General allowances are established for probable losses on loans
whose impairment cannot otherwise be measured.
Securitizations of finance assets
The Company sells the majority of its asset-based financing
originations to securitization vehicles.
The securitization transactions are accounted for as sales of
finance assets, resulting in the removal of the assets from the
Company's consolidated balance sheets and the computation of a
gain on sale. 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 a normal
servicing fee. The sale of finance assets is recorded when the
significant risks and rewards of ownership are transferred.
2
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Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Income is earned on the long term securitization receivable and is
recognized on an accrual basis. The carrying value of this asset
is reduced, as required, based upon changes in the Company's share
of the estimated credit losses on the securitized assets. The
Company continues to manage the securitized assets and recognizes
income equal to a normal servicing fee over the term of the
securitized assets.
Syndications
Other finance assets are underwritten and sold to institutional
investors for cash. These transactions generate syndication fees
for the Company, which generally continues to service these assets
on behalf of the investors.
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 asset retained by the
Company is at least equal to the average yield earned by the other
participants involved.
Fixed assets
Fixed assets are recorded at cost. Depreciation is provided on a
straight-line basis at rates designed to write off the assets over
their estimated useful lives as follows:
Building 20 years
Furniture and fixtures 10 years
Computers and office equipment 5 years
Goodwill
Goodwill is recorded at cost less accumulated amortization.
Amortization is provided on a straight-line basis over a period
not to exceed 20 years. The valuation and amortization of
goodwill is evaluated on an on-going-basis and, if considered
permanently impaired, 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.
3
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Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Foreign currency translation
Assets and liabilities denominated in foreign currencies are
translated using the temporal method, whereby monetary assets and
liabilities are converted into Canadian dollars at exchange rates
in effect at the consolidated balance sheet dates. Gains and
losses on finance assets and debt are deferred and amortized over
the remaining lives of the related items on a straight-line basis.
Non-monetary assets and liabilities are translated at historical
rates. Revenue and expenses are translated at the exchange rate
in effect on the date of the transaction.
Certain foreign operations are considered self-sustaining. As a
result, the assets and liabilities of these operations are
translated into Canadian dollars at rates in effect at the balance
sheet date. Revenue and expenses are translated at the average
exchange rates prevailing during the year. Unrealized foreign
currency translation gains and losses on these self-sustaining
operations are recorded in shareholders' equity.
Income taxes
During 1997, the Canadian Institute of Chartered Accountants
approved the adoption of the liability method of accounting for
income taxes effective for fiscal years beginning on or after
January 1, 2000. Effective January 1, 1996, the Company adopted
the provisions of the standard. The adoption of the standard
changes the Company's method of accounting for income taxes from
the comprehensive tax allocation method to an asset and liability
approach. Under the asset and liability method, future tax assets
and liabilities are provided for all significant temporary
differences between the financial statement and tax bases of
assets and liabilities and are adjusted for tax rate changes as
they occur.
The Company has retroactively adopted this standard and concluded
that the adoption of this standard does not have a material impact
on the Company's financial position or results of operations in
the current or preceding years.
Earnings per common share
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 options to acquire
common shares.
4
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Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Derivative financial instruments
Derivative financial instruments are used to hedge the Company's
exposure to interest and currency risk by creating positions which
are opposite to, and offset, on-balance sheet positions which
arise from normal operations. The most frequently used
derivatives are interest rate and currency swaps, bond forwards
and foreign exchange forward contracts.
Contract and notional amounts associated with derivative financial
instruments are not recorded as assets or liabilities on the
balance sheet. Off-balance sheet treatment is accorded where an
exchange of the underlying asset or liability has not occurred or
is not assured, or where notional amounts are used solely to
determine cash flows to be exchanged.
Swaps and bond forward contracts are accounted for on the accrual
basis. Net accrued interest receivable/payable and deferred
gains/losses are recorded in other assets or other liabilities, as
appropriate. Realized gains/losses on terminated contracts are
deferred and amortized over the remaining life of the related
position.
Use of estimates
The preparation of 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 disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
5
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
3. INVESTMENT IN FINANCE ASSETS
The investment in finance assets consists of loans, leases and the
Company's investment in long term securitization receivable
outstanding at December 31, 1997, which are due as follows:
<TABLE>
<CAPTION>
Leases Net
---------------------------------------- Long term investment
Minimum Unearned Net securitization in finance
Loans payments income investment receivable assets
<S> <C> <C> <C> <C> <C> <C>
$ $ $ $ $ $
- -----------------------------------------------------------------------------------------------------
1998 327,305 379,706 72,865 306,841 155,396 789,542
1999 136,838 342,272 46,522 295,750 83,520 516,108
2000 121,208 242,709 27,717 214,992 47,278 383,478
2001 108,604 137,785 17,611 120,174 20,185 248,963
2002 93,309 76,813 11,184 65,629 11,472 170,410
Thereafter 245,542 88,261 14,121 74,140 33,218 352,900
- -----------------------------------------------------------------------------------------------------
1,032,806 1,267,546 190,020 1,077,526 351,069 2,461,401
- -----------------------------------------------------------------------------------------------------
</TABLE>
Minimum lease payments include the estimated unguaranteed residual
value of leased assets of $57,421 [1996 - $29,920].
At December 31, 1996, the investments in loans, leases and long
term securitization receivable were $571,801, $346,521 and
$153,955 respectively. Included in investment in finance assets
is US$876,583 [December 31, 1996 - US$600,367].
Substantially all of the investment in finance assets bear
interest at varying levels of fixed rates of interest. There are
no significant concentrations.
The loans included in investment in finance assets are
collateralized by the related finance assets.
6
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
An analysis of the Company's allowance for credit losses and
investment in finance assets is as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
<S> <C> <C>
$ $
- ----------------------------------------------------------------------------
Investment in finance assets 2,461,401 1,072,277
- ----------------------------------------------------------------------------
Allowance for credit losses, beginning of year 16,465 5,089
Provisions for credit losses during the year
including acquisitions 31,041 14,496
- ----------------------------------------------------------------------------
Write-offs, net of recoveries (8,943) (3,120)
- ----------------------------------------------------------------------------
Allowance for credit losses, end of year 38,563 16,465
- ----------------------------------------------------------------------------
Allowance as a percentage of finance assets 1.6% 1.5%
- ----------------------------------------------------------------------------
Finance assets in arrears (90 days and over) 13,619 6,353
- ----------------------------------------------------------------------------
Arrears as a percentage of finance assets 0.6% 0.6%
- ----------------------------------------------------------------------------
Average recorded investment in finance assets
in arrears during the year 7,207 4,123
- ----------------------------------------------------------------------------
Finance assets in repossession, at estimated
net realizable value 6,023 7,391
- ----------------------------------------------------------------------------
</TABLE>
Credit provisions against finance assets acquired during the year
amounted to $26,230 [December 31, 1996 - $11,357].
The Company has an additional specific credit loss reserve of
$1,596 [December 31, 1996 - $1,928] relating to the Company's long
term securitization receivable, representing its interest in the
CIP I, II, III, IV, V and VI securitization vehicles. Beyond this
specific credit loss reserve further losses may be provided for by
a reduction in the yield earned on the long term securitization
receivable.
7
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
4. SECURITIZATIONS
The Company has a securitization program under which fixed rate
finance assets originated by the Company are sold to
securitization vehicles. As a result of this program, a
significant amount of the Company's asset finance income is
derived from gains on the sale of securitized finance assets and
management fees relating to such assets. The Company continues to
be responsible for the administration and collection of the
receivables on behalf of the investors.
Financing contracts are sold to limited partnerships funded by
institutional investors through the issuance of senior and junior
asset-backed instruments (92% and 8% respectively). The Company
retains a one-third interest in the junior instrument on a pari
passu basis with institutional investors. Consideration for the
sales consist of an initial cash payment and additional sale
proceeds, representing the Company's interest in cash flows of the
limited partnership. The sales are non-recourse to the Company,
except to the extent of the long term securitization receivable
for additional sale proceeds.
Floating rate contracts are sold through public multi-seller
securitization vehicles for cash consideration and additional sale
proceeds. The Company provides the multi-seller with protection
from certain risks of ownership by providing an over
collateralization reserve which represents the Company's interest
in the cash flows of the assets sold.
An undivided ownership interest in eligible inventory finance
loans and revolving loans is sold on a revolving basis to a multi-
seller securitization trust. The Company provides the multi-
seller with protection from certain risks of ownership by
providing an over collateralization reserve and a cash security
subject to a dollar floor.
During the year, the Company generated net securitization income
of $140,133 [1996 - $51,037] which is included in securitization
and syndication fees.
Included in investment in finance assets is the long term
securitization receivable comprised of (i) $319,224 [December 31,
1996 - $143,971] of additional sales proceeds which represents the
Company's interest in the cash flows of the securitization
vehicles, (ii) $9,006 [December 31, 1996 - $7,534] of
securitization proceeds from the sale of assets to certain
securitization vehicles which are to be received over the term of
the securitized assets as excess servicing fees which have a first
priority on all the cash flows of the vehicles and (iii) $22,839
[December 31, 1996 - $2,450] representing the additional cash
security provided to certain multi-seller securitization vehicles.
8
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
As at December 31, 1997, the Company had commitments or
substantially completed commitments to fund or support the
funding of the following amounts:
<TABLE>
<S> <C>
$
- -----------------------------------------------------------
Commercial Finance 3,606,000
Corporate Finance 675,000
- -----------------------------------------------------------
4,281,000
- -----------------------------------------------------------
</TABLE>
5. INVESTMENT IN AFFILIATED COMPANIES
Investment in affiliated companies represents the Company's
investment in its foreign affiliates through which the
international based operations of the Company are conducted and
additional investment in other affiliated companies.
6. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------ ------------------------
Accumulated Accumulated
Cost depreciation Cost depreciation
<S> <C> <C> <C> <C>
$ $ $ $
- ---------------------------------------------------------------------------------------
Land and buildings 14,654 3,281 5,590 1,011
Furniture and fixtures 48,658 15,143 19,982 3,767
Computers and office equipment 56,552 17,300 25,041 6,767
Other 4,182 926 1,914 123
- ---------------------------------------------------------------------------------------
124,046 36,650 52,527 11,668
- ---------------------------------------------------------------------------------------
Net book value 87,396 40,859
- ---------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
7. ACQUISITIONS
On August 29, 1997, the Company acquired all of the outstanding
common shares of Commcorp Financial Services Inc. ("Commcorp") for
approximately $366 million of which $89 million was paid in cash,
and the remaining $277 million through the issuance of common
shares. Commcorp provides asset finance and management services
to a broad range of industries.
On September 5, 1997, the Company purchased the Business
Technology Finance ("BTF") division of Lloyds UDT for
approximately $493 million paid in cash for assets acquired less
the assumption of certain business liabilities. BTF operates
primarily in three markets: information technology,
telecommunications, and business equipment.
Other acquisitions made by the Company include Lease Finance Group
Limited Partnership, Omni Financial Services of America, Inc., ERF
and an additional interest in BML Leasing Limited for
approximately $40 million in cash consideration.
10
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
These acquisitions have been accounted for as purchases, and
accordingly the consolidated financial statements include the
results of operations of the acquired businesses from the dates of
acquisition. The net assets acquired are as follows:
<TABLE>
<CAPTION>
Commcorp BTF Others Total
<S> <C> <C> <C> <C>
$ $ $ $
- -------------------------------------------------------------------------------
Net assets acquired at approximate
fair values
Investment in finance assets 596,891 421,802 69,298 1,087,991
Investment in affiliated companies 18,471 -- 1,960 20,431
Accounts receivable, prepaids and other 32,368 9,854 16,618 58,840
Fixed assets 14,143 2,195 4,678 21,016
- -------------------------------------------------------------------------------
661,873 433,851 92,554 1,188,278
- -------------------------------------------------------------------------------
Accounts payable and accrued
liabilities 123,734 30,546 11,160 165,440
Debt 351,120 -- 60,905 412,025
Deferred income taxes 68,911 -- 1,605 70,516
- -------------------------------------------------------------------------------
543,765 30,546 73,670 647,981
- -------------------------------------------------------------------------------
Net assets acquired 118,108 403,305 18,884 540,297
- -------------------------------------------------------------------------------
Consideration
Cash 88,633 493,049 40,220 621,902
Common shares 277,295 -- -- 277,295
- -------------------------------------------------------------------------------
Total consideration 365,928 493,049 40,220 899,197
- -------------------------------------------------------------------------------
Goodwill 247,820 89,744 21,336 358,900
- -------------------------------------------------------------------------------
</TABLE>
Upon completion of these acquisitions, total goodwill amounted to
$420,715 [December 31, 1996 - $57,140].
11
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
8. RESTRUCTURING CHARGES
During the year, the Company recorded restructuring charges
totaling $103,000. These charges are related to costs expected to
be incurred in connection with the announced plans to integrate
Commcorp and rationalize certain of Newcourt's other businesses in
Canada and the United States. The charges comprise amounts for
severance and office closings and to write-off certain redundant
start-up and systems costs. The Company expects that its
integration and rationalization plans will be completed by the end
of 1998.
The effect on net income after income taxes and earnings per
common share of this charge is set out below:
<TABLE>
<S> <C>
$
- ------------------------------------------------------------
Restructuring charges 103,000
Taxes recoverable (46,350)
- ------------------------------------------------------------
Net restructuring charges 56,650
- ------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
Earnings per common share:
Basic
- - Operations $1.33
- - Restructuring charges (0.81)
- ------------------------------------------------------------
$0.52
- ------------------------------------------------------------
Fully diluted $0.52
- ------------------------------------------------------------
</TABLE>
12
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
9. DEBT
<TABLE>
<CAPTION>
Debt consists of the following:
December 31, December 31,
1997 1996
<S> <C> <C>
$ $
- --------------------------------------------------------------------------------
Fixed Rate Debt
U.S. senior notes, bearing interest varying from 6.95%
to 7.12%, maturing in the years 2000 to 2005 149,011 143,186
U.S. senior notes, bearing interest at 8.26%,
maturing in the year 2005 143,280 137,020
Medium term notes, bearing interest rates varying from
4.4% to 9.34% maturing in the years 1998 to 2007 1,118,433 328,050
7.625% debenture, maturing in June, 2001 124,802 124,745
6.45% debenture, maturing in June, 2002 149,782 149,733
Other
Commercial paper and other short term borrowings 834,281 594,723
Fixed rate debt, bearing interest varying from
5.2% to 12.89%with the related investment in
finance assets pledged as security 270,227 114,569
- --------------------------------------------------------------------------------
2,789,816 1,592,026
- --------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Interest expense on the debt outstanding during the year was
$145,252 [1996 - $104,601], of which $16,363 [1996 - $12,689] has
been deducted from net income from affiliated companies and the
balance $128,889 [1996 - $91,912] deducted from net finance
income.
On August 12, 1997, the Company increased its Canadian bank
facility to $750 million. On May 14, 1997, the Company renewed
and increased its U.S. bank facility to US$600 million. The
Canadian bank facility and one-third of the U.S. bank facility is
a 364-day committed unsecured revolving credit facility with a
syndicate of Canadian, U.S. and international banks. The
remaining two-thirds of the U.S. bank facility is a three-year
committed unsecured revolving credit facility. These credit
facilities are used as interim funding pending syndication, sale,
securitization, collection of proceeds of financings assets, or as
support for the Company's $750 million Canadian commercial paper
program and its US$600 million U.S. commercial paper program. The
Canadian and U.S. bank facilities attract interest at bankers'
acceptance plus 45 basis points and LIBOR plus 45 basis points,
respectively. The amount of unused Canadian and U.S. bank
facilities are $750,000 [December 31, 1996 - $450,000] and
US$500,000 [December 31, 1996 - US$420,000] respectively.
The weighted average interest on commercial paper outstanding at
the end of the year is 5.96% [1996 - 5.49%].
Included in debt is US$1,388,211 [December 31, 1996 - US$990,243]
of which US$1,323,211 [December 31, 1996 - US$925,243] was used to
fund leases and loans which are repayable in U.S. dollars. The
remainder was swapped into floating rate Canadian dollar debt.
The Company's U.S. senior notes, medium term notes, debentures and
bank facilities' agreements contain certain restrictive convenants
which include maintaining certain asset and debt to equity ratios,
certain levels of forward funding commitments, credit losses and
arrears within defined levels and expense and earnings ratios.
The Company is in compliance with all restrictive convenants.
14
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1997, scheduled repayments are as follows:
$
- -------------------------------------------------
<S> <C>
1998 1,237,082
1999 228,653
2000 258,782
2001 242,616
2002 235,472
Thereafter 587,211
- -------------------------------------------------
2,789,816
- -------------------------------------------------
</TABLE>
10. 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.
15
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Outstanding -
The following is a summary of the changes in share capital during the year:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
# $ # $
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------
Subscription Rights [Note 21]
Outstanding, beginning of year -- -- -- --
Proceeds of rights issue, net 38,500,000 1,758,493 -- --
- ----------------------------------------------------------------------------
Outstanding, end of year 38,500,000 1,758,493 -- --
- ----------------------------------------------------------------------------
Common Shares
Outstanding, beginning of year 60,182,688 415,160 22,664,466 188,166
Proceeds of share issue, net 13,910,000 481,030 7,150,000 224,434
Issued on acquisition [note 7] 8,214,843 277,295 -- --
Stock options exercised 743,172 2,839 3,250 44
Others 20,255 585 74,303 2,430
2:1 share division -- -- 30,091,344 0
Conversion of special shares -- -- 199,325 86
- ----------------------------------------------------------------------------
Outstanding, end of year 83,070,958 1,176,909 60,182,688 415,160
- ----------------------------------------------------------------------------
Special Shares
Outstanding, beginning of year -- -- 199,325 86
Conversion to common shares -- -- (199,325) (86)
- ----------------------------------------------------------------------------
Outstanding, end of year -- -- -- --
- ----------------------------------------------------------------------------
Total Share Capital 121,570,958 2,935,402 60,182,688 415,160
- ----------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Public Offerings
On April 22, 1996, the Company completed a public offering of
3,850,000 (7,700,000 post split) Common Shares at $28.50 per share
for gross proceeds of $109,725. Expenses of this issue, net of
deferred income tax recoveries of $2,292, amounted to $2,802.
On September 30, 1996, the Company completed a public offering of
3,300,000 (6,600,000 post split) Common Shares at $36.50 per share
for gross proceeds of $120,450. Expenses of this issue, net of
deferred income tax recoveries of $2,404, amounted to $2,939.
On March 11, 1997, the Company completed a public offering of
2,475,000 (4,950,000 post split) Common Shares at $51.00 per share
for gross proceeds of $126,225. Expenses of this issue, net of
deferred income tax recoveries of $2,508, amounted to $3,066.
On August 29, 1997, the Company completed a public offering of
7,260,000 common shares at $38.50 per share for gross proceeds of
$279,510. Expenses of this issue, net of deferred income tax
recoveries of $5,571, amounted to $6,809.
Treasury Issue
On September 24, 1997, the Company completed a private placement
of 1,700,000 common shares at $50.10 per share for proceeds of
$85,170.
Special Shares
On July 2, 1996, the remaining 199,325 Special Shares were
converted into 199,325 (398,650 post split) Common Shares.
Common Shares
Effective April 14, 1997, the Company subdivided on a two-for-one
basis all of the Company's issued and outstanding Common Shares
and all the Company's Common Shares reserved for issuance.
17
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
11. EMPLOYEE STOCK OPTION PLAN
During the year, the Company's Stock Option Plan as approved by
the shareholders at the Annual General Meeting was amended. Under
the amended Plan, the Company may issue 9,046,878 common shares to
employees and directors of the Company at the discretion of the
Board of Directors. The number of shares which may be issued
under options to any individual employee or director shall not
exceed in the aggregate 5% of the total of the outstanding shares.
During the year the Company issued 2,557,298 options. The
exercise price of each option equals the closing market price of
the Company's shares on the day preceding the grant of the option.
If there is no trading on the date preceding the date of grant
then a weighted average trading price for the five days prior to
the date of grant is used. Upon granting of an option, the
Company designates both vesting and expiry dates of the options,
of which the maximum term is ten years. The vesting period is
determined by the Company upon granting of the options.
As at December 31, 1997, the following common share options were outstanding:
<TABLE>
<CAPTION>
Number of Shares Per Share
$ Expiry Date
---------------------------------------------------
<S> <C> <C> <C>
Options granted to:
Directors 15,600 6.75 February 23, 1998
30,000 7.75 February 23, 1998
28,000 8.75 February 23, 1998
25,000 14.40 February 23, 2001
12,000 24.25 February 6, 2007
20,000 24.25 May 2, 2007
18,000 26.00 May 2, 2007
Employees
119,400 6.75 February 23, 1998
152,500 7.75 February 28, 1998
514,502 12.00 January 29, 2001
355,700 24.25 February 6, 2007
2,054,998 26.00 May 2, 2007
50,000 49.50 August 16, 2004
22,000 49.50 September 16, 2007
23,400 47.20 October 30, 2007
---------
3,441,100
---------
---------
</TABLE>
18
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Of the above, stock options on 698,413 common shares are
exercisable as at December 31, 1997. The remaining stock options
on 2,742,687 common shares are exercisable as follows:
<TABLE>
<CAPTION>
Number of Shares Exercisable Date
---------------- ----------------
<S> <C>
186,539 1998
638,125 1999
639,325 2000
639,323 2001
639,375 2002
----------------
2,742,687
----------------
----------------
</TABLE>
During 1997, the Company purchased 56,802 [1996 - 11,598] options
at their fair market value resulting in a cash distribution of
$1,100 [1996 - $164].
19
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
12. INCOME TAXES
(a) The Company's provision for income taxes is lower than the
statutory rate prevailing in Canada due to lower income tax rates
on income earned from operations outside Canada and the dividend
deduction available as foreign earnings are repatriated.
The following table reconciles tax expense calculated at the
statutory rates with the actual income tax expense:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
$ $
- ----------------------------------------------------------------------------------
<S> <C> <C>
Income before income taxes 16,074 64,150
- ----------------------------------------------------------------------------------
Statutory rate of income taxes 45% 45%
- ----------------------------------------------------------------------------------
Income taxes at the statutory rate 7,233 28,868
Effect on income taxes of
Deductible dividends (11,705) (12,795)
Recognition of losses carried forward -- (297)
Foreign tax rate differential (18,679) (4,054)
Large corporations tax 2,164 1,304
Other 640 443
- ----------------------------------------------------------------------------------
Provision for (recovery of) income taxes (20,347) 13,469
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
Allocation of provision
Current 3,169 5,671
Future (23,516) 7,798
- ----------------------------------------------------------------------------------
(20,347) 13,469
- ----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
(b) The tax effects of temporary differences that give rise to
significant portions of the future income tax assets and future
income tax liability are presented below:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
$ $
------------ -------------
<S> <C> <C>
Future income tax liability:
Differences in tax and accounting
basis of finance assets (118,819) (26,941)
Securitization related (58,806) (27,856)
Other (29,224) (1,684)
- -----------------------------------------------------------------------------
Gross future income tax liability (206,849) (56,481)
- -----------------------------------------------------------------------------
Future income tax asset:
Net operating loss carryforward 110,172 44,347
Other 68,938 56
- -----------------------------------------------------------------------------
Gross future income tax asset 179,110 44,403
- -----------------------------------------------------------------------------
Valuation allowance -- --
- -----------------------------------------------------------------------------
Gross future income tax asset net of
valuation allowance 179,110 44,403
- -----------------------------------------------------------------------------
Total future income tax liability (27,739) (12,078)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
The Company has $254,281 of net operating losses available for
tax purposes to offset future taxable income arising from the
reversal of deferred income tax liabilities. Net operating
losses pertaining to the Canadian operations of $189,445 will
expire at various dates by the year 2004. Net operating losses
pertaining to the U.S. operations of $64,836 will expire at
various dates by the year 2012.
21
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
(c) The income (loss) before income taxes and provision for
(recovery of) income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
$ $
-------- --------
<S> <C> <C>
Income (loss) before income taxes
Canada (47,023) 24,598
United States 37,057 38,538
International 26,040 1,014
- --------------------------------------------------------------
16,074 64,150
- --------------------------------------------------------------
- --------------------------------------------------------------
Provision for current income taxes
Canada 1,338 3,880
United States 758 1,667
International 1,073 124
- --------------------------------------------------------------
3,169 5,671
- --------------------------------------------------------------
- --------------------------------------------------------------
Provision for (recovery of) future
income taxes
Canada (38,605) (5,458)
United States 13,694 13,256
International 1,395 --
- --------------------------------------------------------------
(23,516) 7,798
- --------------------------------------------------------------
- --------------------------------------------------------------
Total provision for (recovery of
income taxes)
Current 3,169 5,671
Future (23,516) 7,798
- --------------------------------------------------------------
(20,347) 13,469
- --------------------------------------------------------------
- --------------------------------------------------------------
Net income
Canada (9,756) 26,176
United States 22,605 23,615
International 23,572 890
- --------------------------------------------------------------
36,421 50,681
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
22
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
13. 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 4. Syndicated finance
assets are assets which have been sold to investors without recourse or
credit enhancement.
Finance assets under management are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
$ $
- -------------------------------------------------------
<S> <C> <C>
Securitized finance assets 5,626,856 2,731,341
Syndicated finance assets 1,386,706 1,230,221
Syndicated finance assets
of affiliated companies 616,052 655,843
- -------------------------------------------------------
7,629,614 4,617,405
- -------------------------------------------------------
- -------------------------------------------------------
</TABLE>
23
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
14. SEGMENTED INFORMATION
The Company is in the business of underwriting and then
securitizing or syndicating asset-based financings in Canada, the
United States and internationally. Income is generated from these
sources as securitization and syndication fees, income from
affiliated companies, management fees and net finance income.
The Company's investment in finance assets at December 31 is as
follows:
<TABLE>
<CAPTION>
1997 1996
$ $
- -----------------------------------------------
<S> <C> <C>
Canada 992,404 372,785
United States 848,686 612,215
International 620,311 87,277
- -----------------------------------------------
Total 2,461,401 1,072,277
- -----------------------------------------------
- -----------------------------------------------
</TABLE>
Asset finance income for the year ended December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
$ $
- -----------------------------------------------------------
<S> <C> <C>
Securitization and syndication fees
Canada 86,326 36,970
United States 87,302 43,837
International 15,209 6,699
- -----------------------------------------------------------
Total 188,837 87,506
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
24
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996
$ $
- -----------------------------------------------------------
<S> <C> <C>
Income from affiliated companies
International 9,552 8,549
- -----------------------------------------------------------
Management and other fees
Canada 14,771 9,237
United States 20,926 13,911
- -----------------------------------------------------------
Total 35,697 23,148
- -----------------------------------------------------------
- -----------------------------------------------------------
Net finance income
Canada 43,794 23,671
United States 27,468 26,769
International 13,087 1,946
- -----------------------------------------------------------
Total 84,349 52,386
- -----------------------------------------------------------
- -----------------------------------------------------------
Total asset finance income
Canada 144,891 69,878
United States 135,697 84,517
International 37,847 17,194
- -----------------------------------------------------------
Total 318,435 171,589
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
25
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
15. LEASE COMMITMENTS
Future minimum annual payments on a cash basis under leases for
premises over the next 5 years and thereafter are as follows:
<TABLE>
<CAPTION>
$
- --------------------------------
<S> <C>
1998 9,770
1999 10,425
2000 10,977
2001 11,216
2002 10,924
Thereafter 58,551
- --------------------------------
111,863
- --------------------------------
- --------------------------------
</TABLE>
Rent expense amounted to $9,632 in 1997 [1996 - $5,568].
26
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
16. DERIVATIVE FINANCIAL INSTRUMENTS
In the normal course of business, the Company enters into
derivative contracts and other hedging transactions to manage
asset/liability exposures, specifically exposures to market
interest rate and foreign currency risk. Market risk represents
the potential for changes in the value of assets and liabilities
due to fluctuations in interest and foreign exchange rates.
The notional principal amounts of the Company's derivatives and
the current credit exposure are as follows:
<TABLE>
<CAPTION>
Current
credit
Notional principal amounts maturing(1) exposure(2)
-------------------------------------- Total Total ------------
Under 1 to 5 Over Dec. 31 Dec. 31 Dec. 31
1 year years 5 years 1997 1996 1997
$ $ $ $ $ $
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts
Bond forwards 986,062 -- -- 986,062 808,925 --
Interest rate swaps 235,717 762,284 247,574 1,245,575 403,669 11,327
- ---------------------------------------------------------------------------------------
1,221,779 762,284 247,574 2,231,637 1,212,594 11,327
- ---------------------------------------------------------------------------------------
Foreign exchange
contracts
Spot and forward
contracts 1,811,703 -- -- 1,811,703 16,243 --
Cross currency swaps 637,469 620,897 76,970 1,335,336 619,119 3,458
- ---------------------------------------------------------------------------------------
2,449,172 620,897 76,970 3,147,039 635,362 3,458
- ---------------------------------------------------------------------------------------
Total derivatives 3,670,951 1,383,181 324,544 5,378,676 1,847,956 14,785
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Notional principal amounts are the contract amounts used in determining
payments.
(2) Credit risk exposure is the replacement cost of all contracts without
taking into account any netting arrangements. All counterparties are
investment grade financial institutions. The fair market value of
derivative contracts hedging on balance sheet financial instruments is
approximately $56 million.
27
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of assets and liabilities at December 31 is as
follows:
<TABLE>
<CAPTION>
1997
$
----------------------------------
Estimated
Carrying Value Fair Value
-----------------------------------
<S> <C> <C>
Assets
Investment in finance assets 2,461,401 2,464,976
Assets held for securitization
and syndication 1,091,398 1,091,398
Investment in affiliated companies 173,918 174,918
Liabilities
Debt 2,789,816 2,799,179
</TABLE>
The aggregate of the estimated fair value amounts presented does
not represent management's estimate of the underlying value of the
Company. Moreover, fair values disclosed represent estimates of
value made at a specific point in time and may not be reflective
of future fair values.
In the case of items which are short term in nature or contain
variable rate features, fair value is considered to be equal to
carrying value. These items are not listed above. Details of the
estimated fair value of derivative financial instruments are
provided in Note 16.
The estimated fair value of investment in finance assets is
estimated by discounting the expected future cash flows using the
current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
The estimated fair value of the debt reflects changes in general
interest rates which have occurred since the debt was originated
and changes in the creditworthiness of the individual borrowers.
For fixed rate debt estimated fair value is determined by
discounting the expected future cash flows related to this debt at
market interest rates for debt with similar credit risks.
28
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
18. INTEREST RATE SENSITIVITY
The table below summarizes the Company's exposure to interest rate
movements by setting out the maturity or repricing date of
interest rate sensitive assets and liabilities.
<TABLE>
<CAPTION>
Expiration
-------------------------------
Under 1 to 5 Over
As at December 31, 1997 1 year years 5 years Total
$ $ $ $
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment in finance assets 789,542 1,318,959 352,900 2,461,401
Assets held for
securitization 1,091,398 -- -- 1,091,398
Investment in affiliated
companies 43,830 25,285 104,803 173,918
- --------------------------------------------------------------------------
1,924,770 1,344,244 457,703 3,726,717
Interest rate contracts 986,532 (696,193) (290,339) --
- --------------------------------------------------------------------------
Rate exposure on assets 2,911,302 648,051 167,364 3,726,717
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Debt 1,237,082 965,523 587,211 2,789,816
Interest rate swaps 1,405,118 (1,139,956) (265,162) 0
- --------------------------------------------------------------------------
Rate exposure on debt 2,642,200 (174,433) 322,049 2,789,816
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
Net asset position 269,102 822,484 (154,685) 936,901
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expiration
-------------------------------
Under 1 to 5 Over Total
As at December 31, 1996 1 year years 5 years
$ $ $ $
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment in finance assets 538,833 356,119 177,325 1,072,277
Assets held for securitization 774,000 -- -- 774,000
Investment in affiliated companies 49,679 23,349 89,280 162,308
- -------------------------------------------------------------------------------
1,362,512 379,468 266,605 2,008,585
Interest rate contracts 155,000 (35,000) (120,000) --
- -------------------------------------------------------------------------------
Rate exposure on assets 1,517,512 344,468 146,605 2,008,585
- -------------------------------------------------------------------------------
Debt 691,322 465,875 434,829 1,592,026
Interest rate swaps 605,025 (377,487) (227,538) --
- -------------------------------------------------------------------------------
Rate exposure on debt 1,296,347 88,388 207,291 1,592,026
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net asset position 221,165 256,080 (60,686) 416,559
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
19. CONSOLIDATED STATEMENT OF CASH FLOWS AND OTHER REPORTING DETAILS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
$ $
------------ ------------
<S> <C> <C>
Decrease in accounts receivable,
prepaids and other (101,297) (36,304)
Increase (decrease) in accounts
payable and accrued liabilities (29,035) 63,185
- --------------------------------------------------------------------------
Total (130,332) 26,881
- --------------------------------------------------------------------------
Cash interest paid 147,038 94,794
- --------------------------------------------------------------------------
Cash taxes paid 6,671 12,477
- --------------------------------------------------------------------------
</TABLE>
30
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
20. RECONCILIATION TO UNITED STATES ACCOUNTING PRINCIPLES
a) These consolidated financial statements have been prepared in accordance
with Canadian GAAP which conform in all material respects with U.S. GAAP, except
as noted below:
[i] For Canadian GAAP purposes, unrealized translation gains and losses
on long term monetary items are deferred and amortized over the
remaining terms of those items. For U.S. GAAP purposes, such gains
and losses are recorded in income immediately.
[ii] For Canadian GAAP purposes, amounts paid to employees to retire
issued stock options without issuing common stock are recorded as
capital transactions. For U.S. GAAP purposes, such amounts paid are
recorded as compensation expense.
[iii] For Canadian GAAP purposes, finance assets sold to securitization
vehicles are not consolidated. Under U.S. GAAP, the Company is
required to consolidate certain of these securitization vehicles. In
addition, U.S. GAAP requires the Company to equity account for its
interest in certain other securitization vehicles. Accordingly, for
U.S. GAAP purposes, the Company has deferred gains recorded on the
asset sales to these vehicles, and, in the case of consolidated
vehicles, has recorded their assets and liabilities on its
consolidated balance sheets. The Company will recognize the deferred
gains in income as the related finance assets are collected.
[iv] The restructuring charge was reduced for costs that would have been
accrued as an adjustment to the liabilities assumed through the
purchase of Commcorp and the rationalization of certain Newcourt
businesses in Canada and the United States under U.S. GAAP, rather
than expensed as permitted by Canadian GAAP.
31
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
The following tables present the amounts that would have been
reported for U.S. GAAP purposes in 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
$ $
------- -------
<S> <C> <C>
Net income for the year - Canadian GAAP 36,421 50,681
Difference in accounting for foreign
exchange gains (losses) (net of income
tax recovery of $6,180 [1996 - $555]) (7,553) 684
Difference in accounting for options retired (1,100) (164)
Difference in accounting for securitization
transactions (net of income taxes of
$4,364 [1996 - $268]) 5,486 (395)
Difference in accounting for restructuring
charge (net of income taxes of $15,600
[1996 - nil]) 19,067 --
- -------------------------------------------------------------------
Net income for the year - U.S. GAAP 52,321 50,806
- -------------------------------------------------------------------
- -------------------------------------------------------------------
Earnings per common share:
Basic
- - Operations $1.28 $0.96
- - Restructuring charges (0.53) --
- -------------------------------------------------------------------
$0.75 $0.96
- -------------------------------------------------------------------
Fully diluted $0.73 $0.95
- -------------------------------------------------------------------
- -------------------------------------------------------------------
</TABLE>
32
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
The following sets forth the computation of basic and diluted
earnings per share for income from continuing operations before
restructuring charges:
<TABLE>
<CAPTION>
1997 1996
$ $
--------- -----------
<S> <C> <C>
Numerator
Income 89,904 50,806
- ---------------------------------------------------------------------------------
Denominator
Denominator for basic earnings
per common share
- - weighted average shares 70,219,175 52,799,810
- ---------------------------------------------------------------------------------
Effect of dilutive securities:
Employee stock options 1,171,555 785,836
- ---------------------------------------------------------------------------------
Denominator for diluted
earnings per common share -
adjusted weighted -
average common shares
and assumed conversions 71,390,730 53,585,646
- ---------------------------------------------------------------------------------
Basic earnings per
common share $1.28 $0.96
Diluted earnings per
common share $1.26 $0.95
- ---------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
Changes in consolidated balance sheet items, as computed under
U.S. GAAP:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
$ $
------------ ------------
<S> <C> <C>
Increase in investment in finance assets 136,646 213,564
Increase (decrease) in accrued liabilities (14,137) 3,939
Increase in debt 135,457 206,498
Increase in subordinated debt 31,422 26,271
Increase (decrease) in other assets 76,127 (3,496)
Increase in goodwill 19,667 --
Increase in future income tax liability 13,784 11,832
</TABLE>
Changes in shareholders' equity, as computed under U.S. GAAP:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
$ $
------------ ------------
<S> <C> <C>
Retained earnings, beginning of year 85,966 41,845
Net income for the year 52,321 50,806
Dividends paid on common and special shares (10,004) (6,685)
- -------------------------------------------------------------------------
Retained earnings, end of year 128,283 85,966
Share capital [note 10] 2,935,402 415,160
Total Shareholders' Equity 3,063,685 501,126
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
(b)U.S. GAAP requires the following disclosures in respect of
income taxes. The following disclosures are based on amounts
determined in accordance with U.S. GAAP. The tax effects of
temporary differences that give rise to significant portions of
the future income tax asset and future income tax liability are
presented below:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
$ $
------------ -------------
<S> <C> <C>
Future income tax liability:
Differences in tax and accounting
basis of finance assets (118,819) (26,941)
Securitization related (63,173) (16,024)
Other (23,342) (1,684)
- ---------------------------------------------------------------------------
Gross future income tax liability (205,334) (44,649)
- ---------------------------------------------------------------------------
Future income tax asset:
Net operating loss carryforward 110,172 44,347
Other 53,641 56
- ---------------------------------------------------------------------------
Gross future income tax asset 163,813 44,403
- ---------------------------------------------------------------------------
Valuation allowance -- --
- ---------------------------------------------------------------------------
Gross future income tax asset net
of valuation allowance 163,813 44,403
- ---------------------------------------------------------------------------
Total future income tax liability (41,521) (246)
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The Company has $254,281 of net operating losses available for
tax purposes to offset future taxable income arising from the
reversal of deferred income tax liabilities. Net operating
losses pertaining to the Canadian operations of $189,445 will
expire at various dates by the year 2004. Net operating losses
pertaining to the U.S. operations of $64,836 will expire at
various dates by the year 2012.
35
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
The disclosure below is based on amounts determined under U.S.
GAAP:
<TABLE>
<CAPTION>
1997 1996
$ $
--------- ---------
<S> <C> <C>
Income (loss) before income taxes
Canada (19,901) 26,019
United States 39,645 37,533
International 26,014 1,010
- --------------------------------------------------------------
45,758 64,562
- --------------------------------------------------------------
- --------------------------------------------------------------
Provision for current income taxes
Canada 1,338 4,006
United States 758 1,541
International 1,073 124
- --------------------------------------------------------------
3,169 5,671
- --------------------------------------------------------------
- --------------------------------------------------------------
Provision for (recovery of)
deferred income taxes
Canada (25,905) (1,720)
United States 14,778 9,805
International 1,395 --
- --------------------------------------------------------------
(9,732) 8,085
- --------------------------------------------------------------
- --------------------------------------------------------------
Total provision for (recovery of)
income taxes
Current 3,169 5,671
Future (9,732) 8,085
- --------------------------------------------------------------
(6,563) 13,756
- --------------------------------------------------------------
- --------------------------------------------------------------
Net income
Canada 4,666 23,733
United States 24,109 26,187
International 23,546 886
- --------------------------------------------------------------
52,321 50,806
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
36
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
(c) The Company accounts for its Stock Option Plan in accordance
with Canadian GAAP on a basis consistent with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations. Accordingly, no
compensation expense has been recognized for its stock option plan
for either Canadian or U.S. GAAP purposes. FASB Statement No. 123
provides for an alternative method of accounting for the plan for
U.S. GAAP purposes. Had compensation cost for the Company's plan
been determined based on the fair value at the grant dates
consistent with the method of FASB Statement No. 123, the
Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
$ $
------ ------
<S> <C> <C>
Net income per U.S. GAAP 51,917 50,305
Earnings per share:
- - Basic and fully
diluted earnings per share $0.74 $0.95
</TABLE>
The fair value of each option granted is estimated on the grant
date using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1996 and
1997 respectively: dividend yield of 0.75 and 0.58 per cent,
expected volatility of 27 and 30 per cent, risk free interest
rates of 6.2 and 6.3 per cent and expected lives of 5 and 8 years.
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
# $ # $
---------------------- ----------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 1,687,726 8.63 1,119,424 6.76
Granted 2,557,298 26.00 593,500 12.14
Exercised (802,640) 6.83 (23,196) 7.88
Forfeited (1,284) 23.02 (2,002) 12.00
- ---------------------------------------------------------------------------------
Outstanding, end of year 3,441,100 21.96 1,687,726 8.63
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Options exercisable at year end 698,413 1,315,207
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $12.02 $4.05
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
37
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
21. SUBSEQUENT EVENTS
On November 17, 1997, the Company agreed subject to the
satisfaction of certain closing conditions to acquire all of the
issued and outstanding common shares of AT&T Capital Corporation,
one of the world's largest diversified equipment leasing and
commercial finance companies.
On December 3, 1997, the Company completed its offering of 38.5
million subscription rights resulting in gross proceeds to the
Company of $1.77 billion. The cash received upon the issuance of
subscription rights has been put into escrow pending the
acquisition of AT&T Capital Corporation and in return, invested in
treasury bills and bankers' acceptances. Each subscription right
entitles the holder to acquire one common share of the Company
upon the completion of the Company's acquisition of AT&T Capital
Corporation. The subscription rights consist of approximately 26
million fully paid subscription rights issued at $46 per right and
approximately 12.5 million installment receipt subscription rights
issued at $47.10 per right.
On January 12, 1998, the Company satisfied the closing conditions
specified in the stock purchase agreement and acquired all of the
issued and outstanding shares of AT&T Capital Corporation. The
purchase price paid on the acquisition closing is approximately
U.S. $1.61 billion (Cdn $2.3 billion), of which approximately U.S.
$1.06 billion (Cdn $1.47 billion) was paid in cash and the
remaining U.S. $550 million (Cdn $811 million) was satisfied
through the issuance of approximately 17.6 million common shares
of the Company.
38
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
Newcourt Credit Group Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in thousands of Canadian dollars]
- --------------------------------------------------------------------------------
The acquisition will be accounted for as a purchase in the first
quarter of 1998 and accordingly the consolidated financial
statements will include the results of operations of the acquired
business from the date of acquisition. The net assets acquired
are as follows:
<TABLE>
<S> <C>
$
Net assets acquired at approximate fair values
Investment in finance assets 3,964,922
Investment in capital leases 4,711,276
Investment in operating leases 2,283,298
Assets held for securitization and syndication 685,188
Accounts receivable, prepaids and other 917,576
- -----------------------------------------------------------
12,562,260
- -----------------------------------------------------------
Accounts payable and accrued liabilities 1,011,283
Debt 10,198,722
Minority interest in preferred shares 286,562
- -----------------------------------------------------------
11,496,567
- -----------------------------------------------------------
Net assets acquired 1,065,693
- -----------------------------------------------------------
Consideration
Cash 1,471,341
Common shares 811,157
- -----------------------------------------------------------
Total consideration 2,282,498
- -----------------------------------------------------------
Goodwill 1,216,805
- -----------------------------------------------------------
</TABLE>
The financial statement figures of AT&T Capital Corporation as at
December 31, 1997 are in accordance with accounting principles
generally accepted in the United States, translated into Canadian
dollars at US$ = $1.4328 Canadian.
The goodwill amount is subject to adjustment upon final
determination of the fair value of assets and liabilities
acquired.
22. COMPARATIVE AMOUNTS
Certain comparative amounts have been reclassified to conform to
the presentation adopted in the current year.
39
<PAGE>
<PAGE>
Exhibit 99(e)
AT&T Capital Corporation
February 9, 1998
Mr. Thomas G. Adams
Vice President and Controller
AT&T Capital Corporation
44 Whippany Road
Morristown, New Jersey 07962-1983
Dear Mr. Adams:
We are aware that AT&T Capital Corporation (the "Company") has
incorporated by reference in its Registration Statement No.
333-18367 its Current Report on Form 8-K, dated February 9, 1998,
which includes Newcourt Credit Group Inc.'s final Prospectus,
dated November 24, 1997, which includes AT&T Capital
Corporation's unaudited interim financial statements as of
September 30, 1997 and for the nine month period then ended and
which also includes our report, dated November 24, 1997, covering
those unaudited interim financial statements. Pursuant to
Regulation C of the Securities Act of 1933 (the "Act"), that
report is not considered a part of the Registration Statement No.
333-18367 prepared or certified by our firm or a report prepared
or certified by our firm within the meaning of Sections 7 and 11
of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
By David L. Cornish
-----------------
David L. Cornish
