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1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: February 9, 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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2
Form 8-K February 9, 1998
Item 5. OTHER EVENTS.
A. Support Agreement. On February 9, 1998, AT&T Capital Corporation
("Capital"), a Delaware corporation, and Newcourt Credit Group Inc.
("Newcourt"), an Ontario corporation and the indirect owner of all the
outstanding shares of capital stock of Capital, entered into a Support
Agreement (the "Support Agreement"). A copy of the Support Agreement is filed
as Exhibit 10(a) hereto. The description and summary of the Support Agreement
contained herein are qualified in all respects by reference thereto.
The Support Agreement provides that, at all times while the Support
Agreement is in effect, (i) Newcourt will directly or indirectly own and hold
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 and 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 (unless required by a court decree), (ii)
Newcourt will cause Capital and its subsidiaries to have a 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, and (iii) if Capital
is unable to make timely payment of any principal, interest or premium in
respect of any Debt (as defined), 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 (the obligations of Newcourt described in the
foregoing clauses (i), (ii) and (iii) are herein called the "Newcourt
Obligations").
"Debt", as defined in the Support Agreement, means (i) any indebtedness
for borrowed money incurred from time to time by Capital from any individual,
corporation, partnership, trust, association or other entity of any kind
("Person") and (ii) any 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 the Support Agreement: (x) any
indebtedness for borrowed money incurred, assumed or guaranteed 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 the Support 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 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.
The Support Agreement provides that it 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
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3
Form 8-K February 9, 1998
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 (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.
The Support Agreement also provides that all holders of Debt incurred,
assumed or guaranteed by Capital during the term of the Support Agreement or
incurred, assumed or guaranteed by Capital prior to the date hereof shall be
intended third-party beneficiaries of the Support 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 the Newcourt
Obligations and (ii) the right to proceed against Newcourt on behalf of Capital
to enforce Capital's rights under the Newcourt Obligations for the benefit of
Capital if Capital fails or refuses to take timely action to enforce Capital's
rights thereunder following demand for such enforcement by such holder. However,
the Support Agreement expressly provides that it 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 that 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.
B. Guarantee. Capital intends to enter into a guarantee (the
"Guarantee") pursuant to which it will guarantee the payment of certain
indebtedness and liquidity facilities issued, guaranteed or entered into by
Newcourt (as amended, supplemented, restated or replaced, collectively, the
"Debt Securities") for the timely benefit of the holders of the Debt Securities
(collectively, the "Noteholders").
The Debt Securities (as in existence on December 31, 1997) are listed
in Exhibit 99(a) hereto. As noted in such exhibit, the outstanding
principal amount of the Debt Securities (consisting of Debt Securities issued
by Newcourt and Debt Securities issued by certain subsidiaries of Newcourt and
guaranteed by Newcourt) at December 31, 1997 aggregated approximately Cdn.
$1,987,625,352 (U.S. $1,387,231,541, using an exchange rate of .6979 U.S.$ to
1.00 Cdn.$).
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4
Form 8-K February 9, 1998
Because the Guarantee is anticipated to cover future indebtedness under the
various documents evidencing or relating to the Debt Securities, as well as
amendments, supplements, restatements or replacements of or to the Debt
Securities, the aggregate outstanding principal amount of the Debt Securities
to be covered by the Guarantee is expected to increase in the future.
Exhibit 99(a) hereto sets forth, with respect to the various Debt
Securities as of December described therein, the aggregate outstanding
principal amount thereof as of December 31, 1997, the interest rates (or range
of interest rates) relating thereto and the maturity (or maturities) thereof.
For further information as to the Debt Securities, see (i) Newcourt's Reports
on Form 6-K (setting forth its unaudited consolidated financial statements as
of, and for the respective three, six and nine month periods ended, March 31,
1997, June 30, 1997 and September 30, 1997 included as Exhibit 99B(2) to
Capital's Current Report on Form 8-K dated November 19, 1997 heretofore filed
by Capital with the Securities and Exchange Commission (which Reports on
Form 6-K were filed by Newcourt with the Securities and Exchange Commission)
and (ii) the audited consolidated financial statements of Newcourt as of, and
for the years ended, December 31, 1997 and 1996 included as Exhibit 99(d)
hereto.
Capital's obligations under the Guarantee are anticipated to represent
an irrevocable and unconditional guarantee of the due and punctual payment to
the Noteholders, on demand, whether at stated maturity or otherwise, of all
debts, liabilities and obligations of Newcourt under the Debt Securities,
including present and future, direct and indirect, absolute and contingent and
matured and unmatured debts, liabilities and obligations. The liability of
Capital under the Guarantee is anticipated to be unlimited as to amount and to
be absolute and unconditional irrespective of any conditions or circumstances
that might otherwise constitute a defense available to Capital or Newcourt,
including any defense based on the lack of validity or the unenforceability of
the Debt Securities or any defense or counterclaim available to Newcourt.
The beneficiaries under the Guarantee are anticipated to have no
obligation to make demands on or pursue remedies against Newcourt or any other
person prior to making demand for payment on Capital. The Guarantee is
expected to be a guarantee of payment and performance and not collection and is
expected to be expressly joint and several with any and all other guarantees
given in respect of the guaranteed obligations. Capital will waive, among other
possible rights, any right to subrogation and any right to be indemnified by
Newcourt or to claim contribution from any other guarantor of the obligations of
Newcourt as long as any guaranteed obligations remain outstanding. The Guarantee
is expected to continue in effect until all guaranteed obligations are repaid in
full. The Guarantee will provide that it shall not be deemed to affect, limit or
impair any obligations of Newcourt under the Support Agreement or affect, limit
or impair any rights of Capital under the Support Agreement or of any holder of
Debt as a third-party beneficiary thereunder.
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5
Form 8-K February 9, 1998
C. Additional Information Relating to Newcourt. On February 4, 1998,
Newcourt issued a press release setting forth (among other things) its
preliminary results of operations for the year ended December 31, 1997 and for
the three month period October 1, 1997 through December 31, 1997. Such press
release is included as Exhibit 99(b) hereto. For further information concerning
Newcourt, see (i) Newcourt's Prospectus dated November 24, 1997 included as
Exhibit 99(c) hereto (which Prospectus was filed by Newcourt with the Securities
and Exchange Commission), (ii) Newcourt's Reports on Form 6-K (setting forth
its unaudited consolidated statements as of, and for the respective three, six
and nine month periods ended, March 31, 1997, June 30, 1997 and September 30,
1997) included as Exhibit 99B(2) to Capital's Current Report on Form 8-K dated
November 19, 1997 heretofore filed by Capital with the Securities and Exchange
Commission (which Reports on Form 6-K were filed by Newcourt with the Securities
and Exchange Commission), and (iii) Newcourt's audited consolidated financial
statements as of, and for the years ended, December 31, 1997 and 1996 included
as Exhibit 99(d) hereto.
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6
Form 8-K February 9, 1998
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.
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.
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7
Form 8-K February 9, 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
GLENN A. VOTEK
_________________________
By: Glenn A. Votek
Vice President and Treasurer
February 9, 1998
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8
Form 8-K February 9, 1998
EXHIBIT INDEX
Exhibit
10(a) Support Agreement dated February 9, 1998 between
Newcourt Credit Group Inc. and AT&T Capital
Corporation.
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.
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9 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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10
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
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11
(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).
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12
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
_______________________
AT&T CAPITAL CORPORATION
ATTEST:
By Glenn A. Votek
__________________________________
Glen J. DuMont
________________________
4
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Listing of Certain Debt Securities of Newcourt 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
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292,291,200
Medium Term Notes (Cdn. $)
bearing interest varying from 4.40% to 9.34%
and maturing in years 1997 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
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462,257,152
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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. $.
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<TABLE>
<S> <C> <C> <C>
FOR IMMEDIATE RELEASE
Trading Symbol: NCT Contact: JOHN SADLER
SENIOR VICE PRESIDENT
Exchange Listings: TORONTO Corporate Affairs
MONTREAL (416) 594-2400
NEW YORK
</TABLE>
NEWCOURT CAPS 1997 WITH 86% GROWTH IN OPERATING INCOME
TORONTO, FEBRUARY 4, 1998 -- Newcourt Credit Group today reported operating
income before restructuring charges and taxes of $119.1 million (US$86.1
million) for the year ended December 31, 1997, representing an 86% increase over
the $64.2 million in operating income reported last year.
On January 12, 1998, Newcourt completed its acquisition of AT&T Capital
Corporation. A charge of $55 million ($0.43 per share) covering severance
packages, office relocations and system costs was applied against fourth quarter
earnings. As a result, net income for the year ended December 31, 1997 was $36.4
million (US$26.3 million) as compared with the $50.7 million reported for the
previous year.
Based on an average of 70,219,175 shares outstanding during the year, the
Company's earnings per share before the restructuring charges were $1.33
(US$0.96) as compared with $0.96 (US$0.70) for last year. The restructuring
charges reduced the basic and fully diluted earnings per share to $0.52
(US$0.38).
At a meeting of the Board of Directors held February 4, 1998, a quarterly
dividend of $0.04 per share (US$0.03) was approved for payment on February 27,
1998 to the common shareholders of record as at the close of business on
February 19, 1998. As well, the Board approved the appointments of David
Sharpless as Newcourt's Deputy Chairman and David Banks, former AT&T Capital
CEO, as Chairman of the Board. Guy Hands, Managing Director of Nomura
International's Principal Finance Group, representing Hercules Holdings, was
also appointed to the Board and to the Company's Investment Committee.
As of December 31, 1997, Newcourt's owned and managed loans totaled $11.4
billion (US$8.0 billion). The Company grew its portfolio by 73% this year from
the $6.6 billion reported at the end of 1996. The owned portion of financial
assets accounted for $3.7 billion versus $2.0 billion in 1996.
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Through its commercial and corporate finance businesses, Newcourt Financial and
Newcourt Capital, the Company more than doubled its production of new
asset-based financings during the year to $8.9 billion, a 54% increase over last
year's $5.8 billion. Of the $8.9 billion, Newcourt Financial generated $5.3
billion (60%) in new loans, while Newcourt Capital originated the remaining $3.6
billion. The U.S. and Canadian markets each accounted for 47.5% of this volume
with the remaining 5% attributed to international markets.
Revenue, as measured by total asset finance income, rose 86% to $318.4 million
for 1997 from $171.6 million last year. Fee-based income represented nearly
three quarters of the Company's revenue mix, accounting for $234.1 million (74%)
of total asset finance income as compared with $119.2 million (70%) for the same
period in 1996. Net finance income increased 61% to total $84.3 million as
compared to last year's $52.4 million.
Asset quality remains strong with credit losses as a percentage of investment in
finance assets for the year of 0.36%. This compares with the Company's credit
loss experience for the previous year of 0.29% of owned finance assets.
"1997 was the year that confirmed the value of Newcourt's unique business
model,' noted Steven K. Hudson, Newcourt's Chief Executive Officer. 'During the
year, Newcourt established firm footing on the global stage with expanded
origination and processing capabilities and greater utilization of international
financial markets. It was also the year we refined our successful vendor-based
origination model to maximize the services we bring to our vendors through
value-added, long-term joint ventures. The relationship we developed with global
computer manufacturer Dell Computer Corporation last April demonstrates our
ability to deliver customized solutions to meet the needs of these clients."
"Our fourth quarter agreement to acquire AT&T Capital is a key component in our
global growth strategy,' Hudson continued. 'Thanks to outstanding technological
capabilities and the global platform from which we are now serving our North
American-based customers, we anticipate increasing our new business volumes by
up to 40% to $25 billion (US$17 billion) in 1998. Continued earnings growth will
be achieved in 1998 by meeting these origination targets and capturing
significant cost savings through the early integration of our combined
operations."
Newcourt is making swift progress on its integration plan. Paul Currie, as head
of a six-person senior management team, is leading a group of 60 employees on 12
task forces to review operations and implement changes. Projects that will
consolidate and rationalize the world-wide origination and operations platforms
are well under way. Immediate cost savings measures have been enacted, including
the cessation of discretionary expenditures and a freeze on hiring. Full
integration is expected to be completed within the next eighteen months.
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The combination of Newcourt Credit Group and AT&T Capital creates one of the
world's leading sources of asset-based financing serving the corporate,
commercial and institutional markets with owned and managed assets of $31.2
billion (US$21.8 billion) and a global distribution capability in 24 countries.
FINANCIAL HIGHLIGHTS
(C$, millions, except share data)
<TABLE>
<CAPTION>
THREE MONTHS TWELVE MONTHS
ENDED ENDED
DECEMBER 31 DECEMBER 31
-------------- --------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Total asset finance income 126.2 56.5 318.4 171.6
Operating income before taxes & one time restructuring charges 43.8 22.2 119.1 64.2
Net income(1) 3.3 17.6 36.4 50.7
Earnings per share
Basic 0.02 0.31 0.52 0.96
Fully diluted 0.02 0.31 0.52 0.96
Dividends per share 0.04 0.035 .15 0.13
Total new asset financings 2,899 1,375 8,912 5,803
</TABLE>
<TABLE>
<CAPTION>
AS AT DECEMBER AS AT DECEMBER
31, 1997 31, 1996
----------------- -----------------
<S> <C> <C>
Total owned and managed assets $11.4 billion $6.6 billion
Common shares outstanding 83,070,958 60,182,688
Subscription rights outstanding 38,500,000 --
</TABLE>
Note (1): Inclusive of total one-time restructuring charges
<PAGE>
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PROSPECTUS
NOVEMBER 24, 1997
[LOGO]Newcourt
credit group
CDN.$460,000,000
10,000,000 FULLY PAID SUBSCRIPTION RIGHTS,
EACH REPRESENTING THE RIGHT TO RECEIVE ONE COMMON SHARE OF
NEWCOURT CREDIT GROUP INC.
10,000,000 fully paid Canadian dollar subscription rights (the "Fully Paid
Subscription Rights") offered hereby will be sold by Newcourt Credit Group
Inc. ("Newcourt" or the "Corporation") at a price of Cdn.$46.00 per Fully Paid
Subscription Right. The proceeds of the sale of Fully Paid Subscription Rights
will be held by Montreal Trust Company of Canada, as depository, and invested
in short-term obligations of or guaranteed by the Government of Canada (and
other approved investments) pending the acquisition by Newcourt of all of the
issued and outstanding shares of AT&T Capital Corporation (the "Acquisition").
See "Acquisition of AT&T Capital Corporation". Each Fully Paid Subscription
Right entitles the holder thereof to acquire, upon closing of the Acquisition
(the "Acquisition Closing"), and without payment of additional consideration,
one Common Share (a "Common Share") of the Corporation. On the Acquisition
Closing, Common Shares will be issued to holders of record of the Fully Paid
Subscription Rights as at the Acquisition Closing, and certificates
representing such Common Shares will be delivered to such holders as soon as
practicable following the Acquisition Closing. In the event the Acquisition
Closing does not occur on or before February 27, 1998 (the "Termination
Date"), holders of the Fully Paid Subscription Rights will receive the
subscription price therefor plus interest equal to the interest actually
earned on the investment of such amount between the closing of this offering
("Closing") and the Termination Date, net of any applicable withholding taxes.
The offering price for the Fully Paid Subscription Rights offered hereby has
been determined by negotiation between the Corporation and the Underwriters.
See "Details of Offering".
---------------
THIS OFFERING IS MADE BY A CANADIAN ISSUER THAT IS PERMITTED, UNDER A
MULTIJURISDICTIONAL DISCLOSURE SYSTEM ADOPTED BY THE UNITED STATES, TO PREPARE
THIS PROSPECTUS IN ACCORDANCE WITH THE DISCLOSURE REQUIREMENTS OF CANADA.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT SUCH REQUIREMENTS ARE DIFFERENT
FROM THOSE OF THE UNITED STATES. THE FINANCIAL STATEMENTS OF THE CORPORATION
INCLUDED OR INCORPORATED HEREIN HAVE BEEN PREPARED IN ACCORDANCE WITH CANADIAN
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, AND ARE SUBJECT TO CANADIAN AUDITING
AND AUDITOR INDEPENDENCE STANDARDS, AND THUS MAY NOT BE COMPARABLE TO
FINANCIAL STATEMENTS OF UNITED STATES COMPANIES.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THE ACQUISITION OF THE SECURITIES
DESCRIBED HEREIN MAY HAVE TAX CONSEQUENCES BOTH IN THE UNITED STATES AND IN
CANADA. SUCH CONSEQUENCES FOR INVESTORS WHO ARE RESIDENT IN, OR CITIZENS OF,
THE UNITED STATES MAY NOT BE DESCRIBED FULLY HEREIN. SEE "U.S. FEDERAL INCOME
TAX CONSEQUENCES" AND "CANADIAN FEDERAL INCOME TAX CONSIDERATIONS" FOR A
GENERAL DISCUSSION OF CERTAIN UNITED STATES AND CANADIAN TAX CONSEQUENCES,
RESPECTIVELY.
THE ENFORCEMENT BY INVESTORS OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES
LAWS MAY BE AFFECTED ADVERSELY BY THE FACT THAT THE CORPORATION IS
INCORPORATED OR ORGANIZED UNDER THE LAWS OF CANADA, THAT SOME OR ALL OF ITS
OFFICERS AND DIRECTORS MAY BE RESIDENTS OF CANADA, THAT SOME OR ALL OF THE
UNDERWRITERS OR EXPERTS NAMED IN THE REGISTRATION STATEMENT MAY BE RESIDENTS
OF CANADA AND THAT ALL OR A SUBSTANTIAL PORTION OF THE ASSETS OF THE
CORPORATION MAY BE LOCATED OUTSIDE OF THE UNITED STATES.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
CIBC OPPENHEIMER CORP. GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO. SCOTIA CAPITAL MARKETS (USA) INC.
MIDLAND WALWYN CAPITAL INC. NESBITT BURNS INC.
RBC DOMINION SECURITIES CORPORATION TD SECURITIES (USA) INC.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NET PROCEEDS
PRICE TO PUBLIC UNDERWRITERS' FEE(1) TO THE CORPORATION
------------------ -------------------- ------------------
<S> <C> <C> <C>
Per Fully Paid Subscrip-
tion Right............. Cdn.$46.00 Cdn.$1.84 Cdn.$44.16
Per Instalment Receipt
Subscription
Right(2)(3)............ Cdn.$47.10 Cdn.$1.88 Cdn.$44.12
Total Offering(4)(5).... Cdn.$1,610,000,000 Cdn.$60,120,387 Cdn.$1,549,879,613
</TABLE>
- --------
(1) Before deducting expenses of the offering, estimated at Cdn.$10 million,
which together with the Underwriters' fee, are payable by the Corporation.
No fee will be paid by the Corporation to the Underwriters in respect of
2.6 million Fully Paid Subscription Rights purchased by certain members of
management of the Corporation and AT&T Capital Corporation. See "Plan of
Distribution". If the Acquisition Closing does not occur by the
Termination Date, the Underwriters will refund 66 2/3% of their fee to the
Corporation.
(2) The Instalment Receipt Subscription Rights will not be offered or sold in
the United States.
(3) Of the final instalment payable in respect of each Instalment Receipt
Subscription Right issued by Newcourt at a price of Cdn.$46.00, Cdn.$1.10
represents the financing cost of financing the final instalment.
Accordingly, the net proceeds to the Corporation per Instalment Receipt
Subscription Right will be Cdn.$44.12.
(4) The Corporation has also granted to the Underwriters an option to acquire
up to an aggregate of 3,500,000 additional Subscription Rights at the
issue price per Fully Paid Subscription Right or Instalment Receipt
Subscription Right, as applicable, to cover over-allotments, if any, and
for market stabilization purposes (the "Over-Allotment Option"). Such
option expires on Closing. See "Plan of Distribution".
(5) The total offering of 35,000,000 Subscription Rights issued by Newcourt at
a price of Cdn.$46.00, prior to the exercise of the Over-Allotment Option,
consists of 12,609,664 Instalment Receipt Subscription Rights and
22,390,336 Fully Paid Subscription Rights.
Concurrently with the offering of the Fully Paid Subscription Rights in the
United States, the Corporation is offering Fully Paid Subscription Rights and
subscription rights evidenced by instalment receipt certificates in Canada
(the "Instalment Receipt Subscription Rights" and, together with the Fully
Paid Subscription Rights, the "Subscription Rights"). The aggregate number of
Subscription Rights to be offered in Canada and the United States, prior to
the exercise of any Over-Allotment Option, will be 35,000,000. THE INSTALMENT
RECEIPT SUBSCRIPTION RIGHTS WILL NOT BE OFFERED OR SOLD IN THE UNITED STATES.
See "Details of the Offering".
The outstanding Common Shares of the Corporation are listed on The Toronto
Stock Exchange, the Montreal Exchange and the New York Stock Exchange under
the symbol "NCT". On November 21, 1997, the closing sale price of the Common
Shares on The Toronto Stock Exchange and on the New York Stock Exchange was
Cdn.$48.80 and U.S.$34.50, respectively. See "Price Range and Trading Volume
For Common Shares".
The Toronto Stock Exchange and the Montreal Exchange have conditionally
approved the listing of the Fully Paid Subscription Rights and the Instalment
Receipts (as hereinafter defined). Listing is subject to the Corporation
fulfilling all the requirements of such exchanges on or before February 22,
1998. In addition, each of The Toronto Stock Exchange, the Montreal Exchange
and the New York Stock Exchange has conditionally approved the listing of the
Common Shares issuable pursuant to the terms of the Subscription Rights,
subject to the Corporation fulfilling all the requirements of such exchanges
on or before February 22, 1998.
The Fully Paid Subscription Rights offered hereby are offered by the
Underwriters as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. The right
is reserved to close the subscription books at any time without notice. It is
expected that Closing will take place on or about December 3, 1997, or such
later date as the Corporation and the Underwriters may agree, but in any event
not later than January 3, 1998. Certificates representing Fully Paid
Subscription Rights will be available for delivery at the Closing.
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DOCUMENTS INCORPORATED BY
REFERENCE................................................................. 3
EXCHANGE RATE DATA......................................................... 4
PROSPECTUS SUMMARY......................................................... 5
THE OFFERING............................................................... 5
NEWCOURT CREDIT GROUP INC.................................................. 7
AT&T CAPITAL CORPORATION................................................... 7
ACQUISITION OF AT&T CAPITAL
CORPORATION............................................................... 7
SELECTED SUMMARY FINANCIAL
INFORMATION............................................................... 9
NEWCOURT CREDIT GROUP INC.................................................. 10
SUMMARY DESCRIPTION OF THE BUSINESS OF NEWCOURT............................ 10
ACQUISITION OF AT&T CAPITAL
CORPORATION............................................................... 11
AT&T CAPITAL CORPORATION................................................... 12
RECENT DEVELOPMENTS........................................................ 21
DETAILS OF THE OFFERING.................................................... 22
U.S. FEDERAL INCOME TAX
CONSEQUENCES.............................................................. 27
CANADIAN FEDERAL INCOME TAX
CONSIDERATIONS............................................................ 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DIVIDENDS................................................................. 30
DESCRIPTION OF SHARE CAPITAL.............................................. 30
USE OF PROCEEDS........................................................... 31
PLAN OF DISTRIBUTION...................................................... 31
PRICE RANGE AND TRADING VOLUME FOR COMMON SHARES.......................... 33
ELIGIBILITY FOR INVESTMENT................................................ 34
LEGAL MATTERS............................................................. 34
AUDITORS, TRANSFER AGENT AND
REGISTRAR................................................................ 34
NEWCOURT CREDIT GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS.................... F-1
NEWCOURT CREDIT GROUP INC.
SUPPLEMENT TO UNAUDITED COMPARATIVE INTERIM CONSOLIDATED FINANCIAL
STATEMENTS............................................................... F-13
AT&T CAPITAL CORPORATION
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS...................... F-17
AT&T CAPITAL CORPORATION
AUDITED CONSOLIDATED FINANCIAL STATEMENTS................................ F-29
</TABLE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SUBSCRIPTION
RIGHTS OR THE COMMON SHARES. SUCH TRANSACTIONS MAY INCLUDE OVER-ALLOTMENT,
STABILIZING AND SHORT-COVERING TRANSACTIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION".
DOCUMENTS INCORPORATED BY REFERENCE
THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE INTO AND FORM AN
INTEGRAL PART OF THIS PROSPECTUS:
(a) THE RENEWAL ANNUAL INFORMATION FORM OF THE CORPORATION DATED MAY 2,
1997;
(b) THE AUDITED COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS OF THE
CORPORATION AND THE AUDITORS' REPORT CONTAINED IN THE CORPORATION'S
ANNUAL REPORT TO SHAREHOLDERS THEREON FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996;
(c) THE UNAUDITED COMPARATIVE INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF
THE CORPORATION FOR THE THREE MONTHS ENDED MARCH 31, 1997, THE SIX
MONTHS ENDED JUNE 30, 1997 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1997;
(d) THE MANAGEMENT INFORMATION CIRCULAR OF THE CORPORATION DATED FEBRUARY
6, 1997, EXCEPT THE SECTIONS ENTITLED "COMPENSATION COMMITTEE", "REPORT
ON EXECUTIVE COMPENSATION", "CORPORATE GOVERNANCE" AND "SHARE
PERFORMANCE GRAPH";
(e) THE MATERIAL CHANGE REPORT OF THE CORPORATION DATED AUGUST 7, 1997
DESCRIBING THE PROPOSED ACQUISITION BY THE CORPORATION OF ALL OF THE
ISSUED AND OUTSTANDING SHARES OF COMMCORP FINANCIAL SERVICES INC.; AND
3
<PAGE>
<PAGE>
(f) THE MATERIAL CHANGE REPORT OF THE CORPORATION DATED NOVEMBER 21, 1997
DESCRIBING THE PROPOSED ACQUISITION BY THE CORPORATION OF ALL OF THE
ISSUED AND OUTSTANDING SHARES OF AT&T CAPITAL CORPORATION.
In addition to the foregoing, the pro forma consolidated financial
statements of the Corporation contained in the Corporation's prospectus dated
August 15, 1997 and comprising the unaudited pro forma consolidated balance
sheet and the unaudited pro forma consolidated statements of income and
retained earnings as at and for the year ended December 31, 1996, and the
related notes and assumptions thereto, are incorporated herein by reference.
See "Unaudited Pro Forma Consolidated Financial Statements".
Any documents of the type referred to above and any material change reports
(excluding confidential reports) filed by the Corporation pursuant to the
requirements of applicable securities legislation after the date of this
prospectus and prior to the termination of this distribution shall be deemed
to be incorporated by reference into this prospectus.
ANY STATEMENT CONTAINED IN A DOCUMENT INCORPORATED OR DEEMED TO BE
INCORPORATED BY REFERENCE HEREIN OR CONTAINED HEREIN SHALL BE DEEMED TO BE
MODIFIED OR SUPERSEDED, FOR PURPOSES OF THIS PROSPECTUS, TO THE EXTENT THAT A
STATEMENT CONTAINED HEREIN OR IN ANY OTHER SUBSEQUENTLY FILED DOCUMENT WHICH
ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE HEREIN MODIFIES OR
SUPERSEDES SUCH PRIOR STATEMENT. ANY STATEMENT SO MODIFIED OR SUPERSEDED SHALL
NOT CONSTITUTE A PART OF THIS PROSPECTUS, EXCEPT AS SO MODIFIED OR SUPERSEDED.
Information set forth herein with respect to AT&T Capital Corporation and
its subsidiaries has been derived from publicly available information,
including the audited consolidated financial statements and unaudited interim
consolidated financial statements of AT&T Capital Corporation filed by AT&T
Capital Corporation with the United States Securities and Exchange Commission
in accordance with applicable U.S. law and from documents provided by, and
discussions with, management of AT&T Capital Corporation. The Stock Purchase
Agreement (as hereinafter defined) provides that the Vendors (as hereinafter
defined) shall have no liability to the Corporation for the information
regarding AT&T Capital Corporation contained in this prospectus and the
Vendors are indemnified by the Corporation for any damage or loss arising in
connection with any third party claims against the Vendors under this
prospectus.
EXCHANGE RATE DATA
All dollar amounts set forth in this prospectus, including the offering
price of the Subscription Rights, are stated in Canadian dollars, except where
otherwise indicated. The following table sets forth for each period indicated
the period-end exchange rates, the average exchange rates and the high and low
exchange rates for U.S. dollars. These rates are the noon-buying rates in New
York City for cable transfers in Canadian dollars as certified for customs
purposes by the Federal Reserve Bank of New York. On November 21, 1997, the
noon buying rate was U.S.$1.00=Cdn.$1.4170.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
----------------- -------------
1997 1996 1996 1995
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Period-end................................ 1.3868 1.3622 1.3706 1.3640
Average................................... 1.3763 1.3678 1.3636 1.3726
High...................................... 1.3873 1.3745 1.3865 1.4267
Low....................................... 1.3663 1.3607 1.3287 1.3275
</TABLE>
4
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified by, and should be read in conjunction with, the
detailed information appearing elsewhere in this short form prospectus.
THE OFFERING
OFFERING: 35,000,000 Subscription Rights consisting of Fully Paid
Subscription Rights in the United States and Canada and
Instalment Receipt Subscription Rights in Canada, each
Subscription Right representing the right to acquire one
Common Share of the Corporation.
AMOUNT OF $1,610,000,000
OFFERING:
PRICE: $47.10 per Instalment Receipt Subscription Right, of which
$29.00 is payable on Closing and $18.10 is payable on or
before December 3, 1998.
$46.00 per Fully Paid Subscription Right.
USE OF PROCEEDS: The net proceeds of the offering, after deducting fees
payable to the Underwriters and the estimated expenses of
the offering but prior to any exercise of the Over-
Allotment Option, will be approximately $1,539,879,613. The
net proceeds of the offering will be used to finance the
cash portion of the purchase price for all of the issued
and outstanding shares of AT&T Capital Corporation, with
the remainder to be used for working capital and general
corporate purposes. See "Acquisition of AT&T Capital
Corporation" and "Use of Proceeds". The proceeds from the
sale of the Subscription Rights will be delivered to
Montreal Trust Company of Canada as depository and held by
it pending the Acquisition Closing, which is expected to
occur on or after January 30, 1998. See "Details of the
Offering".
SUBSCRIPTION Each Subscription Right entitles the holder thereof to
RIGHTS: acquire, upon the Acquisition Closing, one Common Share
without further action on the part of the holder.
Beneficial ownership of the Instalment Receipt Subscription
Rights (and, prior to the payment of the final instalments,
the Common Shares to be acquired pursuant to such
Instalment Receipt Subscription Rights) will be represented
by Instalment Receipts. On the Acquisition Closing: (i) in
the case of Fully Paid Subscription Rights, Common Shares
will be issued to holders of record as at the Acquisition
Closing, and certificates representing such Common Shares
will be delivered to such holders as soon as practicable
thereafter; and (ii) in the case of Instalment Receipt
Subscription Rights, Common Shares will be acquired by
holders of Instalment Receipt Subscription Rights pursuant
to such Instalment Receipt Subscription Rights, the final
instalment of the purchase price of such shares will become
payable by such holders on December 3, 1998 and the
Instalment Receipts will thereafter represent beneficial
ownership of such Common Shares. In the event the
Acquisition Closing does not occur on or before the
Termination Date, holders of Subscription Rights will
receive (i) in the case of Fully Paid Subscription Rights,
an amount equal to the subscription price therefor, and
(ii) in the case of Instalment Receipt Subscription Rights,
an amount equal to the first instalment thereon, plus, in
either case, interest equal to the interest actually earned
on the investment of such amount between Closing and the
Termination Date, net of any applicable withholding taxes.
HOLDERS OF SUBSCRIPTION RIGHTS ARE NOT SHAREHOLDERS OF THE
CORPORATION. See "Details of the Offering".
5
<PAGE>
<PAGE>
INSTALMENT The Subscription Rights offered hereunder will be issued
PAYMENT and sold by the Corporation to the Underwriters. The Common
ARRANGEMENTS: Shares to be acquired pursuant to the Instalment Receipt
Subscription Rights on the Acquisition Closing are being
sold by the Underwriters on an instalment basis. Beneficial
ownership of the Instalment Receipt Subscription Rights
(and, prior to payment of the final instalment, the Common
Shares to be acquired pursuant to such Instalment Receipt
Subscription Rights) will be represented by Instalment
Receipts. The Financial Institutions have agreed to provide
non-recourse financing to the Underwriters to fund a
portion of the Underwriters' cost of the Instalment Receipt
Subscription Rights, such financing to be secured by way of
cash collateral pending the Acquisition Closing, a pledge
of the Instalment Receipt Subscription Rights and the
underlying Common Shares when issued on the Acquisition
Closing and an assignment by way of security of the final
instalments payable by holders of Instalment Receipts.
The first instalment of $29.00 per Instalment Receipt
Subscription Right is payable on the Closing and, if the
Acquisition Closing occurs on or before the Termination
Date, the final instalment of $18.10 per Common Share is
payable on or before December 3, 1998 (not later than 4:00
p.m. local time at the place of payment) by the registered
holder of the Instalment Receipts. As soon as practicable
after payment in full of the final instalment, the
registered holder of an Instalment Receipt will receive a
certificate representing the underlying Common Shares,
which Common Shares will no longer be subject to the pledge
in favour of the Financial Institutions. IF A REGISTERED
HOLDER OF AN INSTALMENT RECEIPT DOES NOT PAY THE FINAL
INSTALMENT IN FULL ON OR BEFORE THE DUE DATE, THE COMMON
SHARES REPRESENTED BY SUCH INSTALMENT RECEIPT MAY, AT THE
FINANCIAL INSTITUTIONS' OPTION, UPON COMPLIANCE WITH
APPLICABLE LAW, BE ACQUIRED BY THE FINANCIAL INSTITUTIONS
IN FULL SATISFACTION OF THE REGISTERED HOLDER'S OBLIGATIONS
TO PAY THE FINAL INSTALMENT SECURED BY THE PLEDGE. THE
INSTALMENT RECEIPT AGREEMENT WILL PROVIDE THAT, UNLESS THE
FINANCIAL INSTITUTIONS SHALL HAVE ACQUIRED THE COMMON
SHARES IN FULL SATISFACTION OF THE OBLIGATIONS OF A
REGISTERED HOLDER, THE FOREGOING SHALL NOT LIMIT ANY OTHER
REMEDIES AVAILABLE TO THE FINANCIAL INSTITUTIONS AGAINST
THE REGISTERED HOLDER OF AN INSTALMENT RECEIPT IN THE EVENT
THE PROCEEDS OF ANY SALE OF COMMON SHARES ARE INSUFFICIENT
TO COVER THE AMOUNT OF THE FINAL INSTALMENT AND THE COSTS
OF SALE AND, ACCORDINGLY, THE REGISTERED HOLDER SHALL IN
SUCH CIRCUMSTANCES REMAIN LIABLE TO THE FINANCIAL
INSTITUTIONS FOR ANY SUCH DEFICIENCY. See "Details of the
Offering--Instalment Receipts".
RIGHTS OF Following the Acquisition Closing and the acquisition of
INSTALMENT the Common Shares pursuant to the Instalment Receipt
RECEIPT HOLDERS: Subscription Rights, registered holders of Instalment
Receipts will be entitled, in the manner set forth in the
Instalment Receipt Agreement described herein, unless they
have defaulted on their obligations under the Instalment
Receipt Agreement, to fully participate in all dividends
and other distributions paid on the Common Shares, to
exercise the votes attached to the Common Shares
represented by such Instalment Receipts and to receive
periodic reports and other materials as if they were
registered holders of the Common Shares. See "Details of
the Offering--Instalment Receipts--Rights and Privileges".
6
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
Newcourt is an independent non-bank financial services company which
originates, sells and manages asset-based financings. The Corporation
originates the financing of a broad range of equipment and capital assets by
way of secured loans, conditional sales contracts and financial leases. The
Corporation's loan origination activities focus on the commercial finance and
corporate finance segments of the asset based lending market.
On August 29, 1997 Newcourt acquired all of the issued and outstanding
common shares of Commcorp Financial Services Inc. ("Commcorp"), a Canadian
asset finance and associated management service company, for approximately $366
million. On September 5, 1997, Newcourt acquired the Business Technology
Finance division of Lloyds Bowmaker Limited (a United Kingdom-based asset
finance company) for $493 million. In October 1997, Newcourt acquired the
micro-balance origination and processing business of Lease Finance Group of
Chicago, Illinois.
For the year ended December 31, 1996, Newcourt generated total asset finance
income of $171.6 million resulting in net income of $50.7 million. For the nine
months ended September 30, 1997 Newcourt reported total asset finance income of
$192.2 million and net income of $33.1 million (reflecting the one time pre-tax
restructuring charge of $48 million related to the acquisition of Commcorp). As
at September 30, 1997, Newcourt had over $9.9 billion in owned and managed
finance assets.
AT&T CAPITAL CORPORATION
AT&T Capital Corporation ("AT&T Capital") is one of the world's leading
commercial finance companies with a diversified portfolio of approximately
U.S.$13 billion as at December 31, 1996 in owned and managed assets covering a
broad spectrum of equipment. Through its international network of 23 countries,
AT&T Capital offers its customers a large variety of financing products and
services including operating leases, finance leases and loan products. AT&T
Capital provides its financial products and services to its worldwide customers
through three principal marketing channels: Vendor Finance, Direct Customer
Finance and International Finance.
For the year ended December 31, 1996, AT&T Capital's revenues totalled more
than U.S.$1.9 billion resulting in net income for the year of approximately
U.S.$168.5 million. For the nine months ended September 30, 1997, AT&T
Capital's total revenues were U.S.$1.3 billion. Net income for the nine months
ended September 30, 1997 was U.S.$35.8 million, a decrease of U.S.$79.5 million
from the comparable period in 1996. Net income was lower due to the decreased
level of capital lease revenue as a result of the completion in 1996 of a
U.S.$3.1 billion securitization, higher relative interest expense associated
with increased leverage relating to the additional debt incurred to finance the
1996 acquisition of AT&T Capital by Hercules Holdings (Cayman) Limited and
distribution on certain preferred securities. See "AT&T Capital Corporation--
AT&T Capital's Recent Financial Performance".
ACQUISITION OF AT&T CAPITAL CORPORATION
On November 17, 1997, Newcourt entered into a stock purchase agreement
pursuant to which it agreed, subject to the satisfaction of certain closing
conditions, to acquire all of the issued and outstanding common shares of AT&T
Capital. The aggregate purchase price to be paid by Newcourt is approximately
U.S.$1.61 billion (Cdn.$2.3 billion), of which U.S.$1.06 billion (Cdn.$1.5
billion) will be paid in cash (financed by the proceeds of this offering) and
the remaining U.S.$550 million (Cdn.$776 million) will be satisfied by the
issuance of approximately 17.6 million Common Shares of Newcourt to Hercules
Holdings (Cayman) Limited ("Hercules"). Hercules (a subsidiary of Hercules
Holding U.K. Limited, which is a company structured and
7
<PAGE>
<PAGE>
financed by Nomura International plc) owns 97.4% of the outstanding common
shares of AT&T Capital, with the remainder of the shares owned by members of
management of AT&T Capital. Newcourt expects that the Acquisition will close on
or after January 30, 1998.
The completion of the Acquisition and the resulting combination of Newcourt
and AT&T Capital will create one of the largest providers of vendor finance in
the world, and one of the world's largest non-bank commercial asset finance
companies with owned and managed finance assets aggregating more than $25.0
billion. While the combined business entity offers the potential for
significant revenue growth and substantial cost savings, the Acquisition also
creates significant challenges and risks to Newcourt, including the management
of the integration of two businesses, the continued dependence on external
sources of funding (and the related sensitivity to credit ratings) and the
dependence of AT&T Capital on its former affiliates for a substantial portion
of its business volume.
Included in this prospectus are unaudited pro forma consolidated financial
statements of Newcourt, together with relevant notes, assumptions and
adjustments thereto, as at and for Newcourt's financial year ended December 31,
1996 and as at and for Newcourt's nine months ended September 30, 1997, each of
which reflects the completion of the offering of Subscription Rights
contemplated by this prospectus and the completion of the Acquisition of AT&T
Capital. See "Unaudited Pro Forma Consolidated Financial Statements".
8
<PAGE>
<PAGE>
SELECTED SUMMARY FINANCIAL INFORMATION
The following selected financial information has been derived from the
consolidated financial statements of the Corporation for the five years ended
December 31, 1996 prepared in accordance with Canadian generally accepted
accounting principles and the interim consolidated statements for the nine
months ended September 30, 1997. The information below should be read in
conjunction with the consolidated financial statements and accompanying notes
of the Corporation and unaudited interim consolidated financial statements of
the Corporation for the nine months ended September 30, 1997, incorporated
herein by reference.
SELECTED SUMMARY FINANCIAL INFORMATION
(in thousands of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED DECEMBER 31,
ENDED SEPTEMBER 30, ------------------------------------------------
1997(6) 1996 1995 1994 1993(3) 1992
------------------- ---------- ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Securitization and syn-
dication fees.......... $109,206 $106,514 $52,110 $34,338 $24,135 $7,775
Income from affiliated
companies and
management fees........ 27,859 12,689 10,364 8,690 7,411 5,853
Net finance income...... 55,156 52,386 29,686 15,930 12,619 13,039
---------- ---------- ---------- -------- -------- --------
Total asset finance in-
come................... 192,221 171,589 92,160 58,958 44,165 26,667
Operating income........ 27,317(7) 64,150 36,438 24,610 21,940 12,087
Net income.............. 33,135 50,681 29,405 18,737 14,268 9,654
Earnings per Common and
Special Share(1)(4)(5). $0.50 0.96 0.76 0.60 0.67 0.49
Fully diluted earnings
per Common and Special
Share(2)(5)............ $0.50 0.96 0.76 0.60 0.67 0.49
<CAPTION>
AS AT AS AT DECEMBER 31,
SEPTEMBER 30, ------------------------------------------------
1997 1996 1995 1994 1993(3) 1992
------------------- ---------- ---------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets............ $4,151,125 $2,164,494 $1,158,215 $733,970 $547,423 $729,220
Debt.................... 2,575,436 1,543,144 879,039 540,381 440,809 609,129
Shareholders' equi-
ty(4)(5)............... 1,300,520 515,934 245,194 160,964 28,011 46,818
</TABLE>
- --------
(1) Based on the weighted average number of Common Shares and Special Shares
outstanding during the period.
(2) Based on the weighted average number of Common Shares and Special Shares
outstanding during the period after giving effect to the exercise of
outstanding stock options.
(3) The 1993 figures include a $3.4 million gain ($1.9 million after provision
for income taxes or $0.18 per share), attributable to the securitization of
pre-1993 commercial finance assets.
(4) On November 30, 1995, 1,611,000 Special Shares were converted into
1,611,000 Common Shares. On December 27, 1995, 1,411,675 Special Shares
were converted into 1,411,675 Common Shares. On July 2, 1996, the remaining
199,325 Special Shares were converted into 199,325 Common Shares. On
December 11, 1995, the Corporation redeemed and cancelled all issued and
outstanding Preference Shares.
(5) Effective April 14, 1997, the Corporation subdivided on a two-for-one basis
all of its issued and outstanding Common Shares and all of its Common
Shares reserved for issuance. The Selected Summary Financial Information
set out in the above table has been adjusted to reflect the stock split.
(6) These unaudited interim statements reflect the acquisition on August 29,
1997 of all of the issued and outstanding common shares of Commcorp and the
acquisition on September 5, 1997 of the Business Technology Finance
division of Lloyds Bowmaker Limited. See "Recent Developments".
(7) Operating income before restructuring charge and taxes was $75.3 million
for the nine months ended September 30, 1997, Newcourt incurred a one time
pre-tax restructuring charge of $48.0 million in respect of severances,
office relocations and system conversions relating to the integration of
Commcorp's operations with Newcourt's existing businesses. See "Recent
Developments".
9
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NEWCOURT CREDIT GROUP INC.
Newcourt Credit Group Inc./Groupe-Credit Newcourt Inc. ("Newcourt" or the
"Corporation") was incorporated in 1984 under the laws of Ontario. The
Corporation's head office and principal place of business is located at Suite
3500, BCE Place, 181 Bay Street, P.O. Box 827, Toronto, Ontario, M5J 2T3.
SUMMARY DESCRIPTION OF THE BUSINESS OF NEWCOURT
Newcourt is an independent, non-bank financial services company which
originates, sells and manages asset-based financings. The Corporation
originates the financing of a broad range of equipment and capital assets by
way of secured loans, conditional sales contracts and financial leases.
Newcourt distinguishes itself from traditional lenders such as banks, trust
and finance companies in that it:
. sells and manages, rather than owns, the majority of the finance assets
which it originates, thereby reducing the Corporation's capital
requirements and credit exposure;
. produces the majority of its income through gains from, and fees related
to, the sale of loans, thereby reducing the Corporation's dependence on
net finance income;
. funds its activities through commitments from institutional investors
rather than by accepting deposits from the public; and
. offers select, asset-based financing services rather than providing
full-service lending.
The Corporation has organized its business activities and operations around
three core functions: (i) loan origination; (ii) loan funding; and (iii) loan
management.
The Corporation's loan origination activities focus on the commercial
finance and corporate finance segments of the asset-based lending market. In
the commercial finance market, Newcourt offers its lending services through
select strategic relationships with equipment manufacturers, dealers and
distributors ("vendors") and certain professional bodies and associations. The
Corporation has more than 235 vendor finance programs with selected equipment
manufacturers which are the primary source of the Corporation's loan
origination business in the commercial finance market. In the commercial
finance market, Newcourt provides its lending services through six distinct
business units:
. HEALTH CARE (FORMERLY HEALTHGROUP FINANCIAL)--provides both direct and
vendor financing in Canada and the United States for health care
equipment used by medical and dental practitioners, clinics and
hospitals;
. INFORMATION TECHNOLOGY--provides vendor financing in Canada, the United
States and Europe for information technology and communication equipment
users;
. TRANSPORTATION AND CONSTRUCTION--provides vendor and inventory financing
in Canada and the United States for transportation and construction
equipment users;
. INVENTORY FINANCE--provides inventory or "floorplan" financing for
equipment manufacturers, dealers and distributors in Canada, the United
States and Australia;
. CONSUMER AND PREMIUM FINANCE--provides point-of-sale term financing to
owner-operated enterprises and consumers in Canada and the United States
and financing of commercial property/casualty and workers' compensation
insurance premiums throughout the United States; and
. ASSET MANAGEMENT--provides fair market value leases in Canada and the
United States in the high technology industry.
In the corporate finance market, the Corporation's specialized investment
banking unit provides advisory and funding services to major Canadian, U.S.
and international corporations, public sector institutions and
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governments. Newcourt's principal structured finance activities in the
corporate finance market include providing corporate and government structured
debt financing, providing financial services to the regional airline industry,
arranging cross-border lease financing, acquiring and managing asset-based
finance portfolios and financing international equipment acquisitions.
To finance its originated loans, Newcourt arranges interim funding from a
number of public and private sources, including bank lines, commercial paper
and medium term note programs and other short term debt financing instruments.
Term funding is arranged for the Corporation's originated commercial finance
assets through securitization vehicles while corporate finance transactions
are generally syndicated to institutional investors.
Newcourt's Portfolio Services Unit, which operates out of two main service
centres in Toronto and Indianapolis, provides the administrative staff and
systems needed to service and support the Corporation's portfolio of over $9.9
billion in owned and managed finance assets.
Newcourt has 42 worldwide offices, including 17 Canadian offices, 21
offices in the United States, 2 offices in the United Kingdom, an office in
Australia and a foreign affiliate office in Barbados.
NEWCOURT'S RECENT FINANCIAL PERFORMANCE
Newcourt reported operating income (before the restructuring charge of $48
million relating to the acquisition of Commcorp) of $75.3 million for the nine
months ended September 30, 1997 representing an 80% increase over the $41.9
million in operating income reported for the same period in 1996.
During the third quarter, Newcourt completed three acquisitions which
strengthened its presence in the commercial vendor finance market and
increased owned and managed assets by more than $2.5 billion. The acquisition
of Commcorp increased Newcourt's origination capability in the Canadian small-
balance market. The acquisition of the Business Technology Finance division of
UK-based Lloyds Bowmaker Limited also increased Newcourt's small-balance
origination strength and established a European-based loan management platform
for the Corporation. In October, 1997, Newcourt acquired the micro-balance
origination and processing business of Lease Finance Group of Chicago,
Illinois.
Newcourt originated new asset-based financings of $6.01 billion during the
first nine months of 1997, compared with $4.43 billion for the same period the
previous year. Approximately 58% of this amount ($3.51 billion) was generated
from the Corporation's activities in the commercial finance market, while the
remaining 42% ($2.50 billion) was sourced in the corporate finance market. The
U.S. and Canadian markets each accounted for 48% of the total origination
volume with the remaining 4% attributed to various international markets.
Total asset finance income for the nine months ended September 30, 1997
rose 67% to $192.2 million from $115.1 million during the same period last
year. Fee-based income accounted for $137.1 million (71%) of total asset
finance income of the Corporation for the period as compared with $79.5
million (69%) for the same period in 1996.
ACQUISITION OF AT&T CAPITAL CORPORATION
On November 17, 1997, the Corporation agreed, subject to the satisfaction
of certain closing conditions, to acquire all of the issued and outstanding
common shares of AT&T Capital. AT&T Capital, a company incorporated under the
laws of Delaware, is one of the world's largest diversified equipment leasing
and commercial finance companies. Hercules (a subsidiary of Hercules Holdings
U.K. Limited, which is a company structured and financed by Nomura
International plc), owns 97.4% of the outstanding shares of AT&T Capital, with
the remainder of the shares owned by members of management of AT&T Capital.
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Pursuant to the stock purchase agreement entered into by Newcourt, AT&T
Capital and Hercules and certain members of management of AT&T Capital
(collectively, the "Vendors") dated November 17, 1997 (the "Stock Purchase
Agreement"), the aggregate purchase price to be paid by Newcourt on the
Acquisition Closing is approximately U.S.$1.61 billion (Cdn.$2.2 billion), of
which approximately U.S.$1.06 billion (Cdn.$1.5 billion) will be paid in cash
and the remaining U.S.$550 million (Cdn.$776 million) will be satisfied by the
issuance of approximately 17.6 million Common Shares of Newcourt to Hercules.
Hercules has agreed, subject to certain exceptions, that such Newcourt Common
Shares shall not be sold, transferred or otherwise disposed of for a period of
six months following the Acquisition Closing, and thereafter may be sold,
transferred or disposed of, as to one-third of such shares six months after
the Acquisition Closing, as to a further one-third of such shares twelve
months after the Acquisition Closing and as to the remaining one-third of such
shares eighteen months after the Acquisition Closing. The cash portion of the
purchase price will be derived from the proceeds of this offering. See "Use of
Proceeds".
CLOSING
The Acquisition Closing is subject to the satisfaction of certain closing
conditions specified in the Stock Purchase Agreement, including receipt of
material regulatory approvals. The Stock Purchase Agreement is also subject to
termination (and the Acquisition will not be completed) if the Underwriters
terminate their obligations under the Underwriting Agreement in the event of
(i) any change in the business, affairs, operations, assets, liabilities or
capital of the Corporation or any of its subsidiaries or AT&T Capital or any
of its subsidiaries which is material to the Corporation, AT&T Capital and
their respective subsidiaries considered as a whole, (ii) any change which is
material to the Corporation which change has a significant adverse effect on
the market price or value of Newcourt's Common Shares or (iii) any occurrence
or any catastrophe of national or international consequence which seriously
adversely affects or will seriously adversely affect the Canadian or United
States financial markets or the business of the Corporation, AT&T Capital and
their respective subsidiaries considered as a whole. Although the Corporation
expects to complete the Acquisition on these terms, there can be no assurance
that it will do so, or that the Acquisition Closing will occur on or after
January 30, 1998, as currently contemplated by the Stock Purchase Agreement.
If the Acquisition does not close by the Termination Date, the Subscription
Rights will be automatically cancelled and purchasers of Subscription Rights
will receive an amount equal to their initial investment in the Subscription
Rights, plus interest, pursuant to the Subscription Rights Agreement. See
"Details of the Offering".
Upon completion of the Acquisition of AT&T Capital, Newcourt anticipates
certain restructuring costs will be incurred. See the notes to the "Unaudited
Pro Forma Consolidated Financial Statements" of Newcourt included in this
prospectus.
AT&T CAPITAL CORPORATION
OVERVIEW
AT&T Capital is one of the world's leading commercial finance companies.
AT&T Capital has a diversified portfolio of approximately U.S.$13 billion as
at December 31, 1996 in owned and managed assets representing over 500,000
customers and covering a broad spectrum of equipment. Through its
international network, AT&T Capital offers its customers a large variety of
financing products and services including operating leases, finance leases and
loan products. AT&T Capital provides its financing services in 23 countries
and, in addition to its offices in the United States, has principal offices in
Brussels, Frankfurt, London, Mexico City, Milan, Paris, Sydney, Hong Kong and
Toronto. As at December 31, 1996, AT&T Capital had more than 3,000 employees.
AT&T Capital was founded in 1985 as a captive finance subsidiary of AT&T
Corp. ("AT&T") to facilitate the sale of products to customers of AT&T
business units engaged in the manufacturing and sale of telecommunications,
computer and related equipment. AT&T Capital built its business around an
operational infrastructure that benefited from AT&T's controls and management
disciplines and combined it with the expertise of senior management recruited
from within the equipment leasing industry. As AT&T Capital's business
capacity grew, it expanded beyond financing AT&T equipment and entered related
financial services markets.
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On October 1, 1996, in connection with a restructuring of AT&T's
operations, the Vendors acquired ownership of AT&T Capital (the "Merger").
BUSINESS OF AT&T CAPITAL
AT&T Capital provides its financial products and services to its worldwide
customers and clients through three principal marketing channels: Vendor
Finance, Direct Customer Finance and International Finance.
The table below shows approximate financing volumes and assets as a percent
of AT&T Capital's total financing volumes and owned assets, attributable to
each of its origination channels for the year ended December 31, 1996.
<TABLE>
<CAPTION>
FINANCING TOTAL
VOLUME ASSETS
----------- ----------
(IN U.S.$ MILLIONS)
<S> <C> <C> <C> <C>
Vendor Finance......................................... $ 2,412 46% $2,590 32%
Direct Customer Finance................................ 1,584 30 3,560 44
International Finance.................................. 1,249 24 1,942 24
------- --- ------ ---
$ 5,245 100% $8,092 100%
======= === ====== ===
</TABLE>
VENDOR FINANCE
AT&T Capital has established vendor finance programs with producers of
telecommunications, information technology and industrial equipment. In
addition, the Vendor Finance unit also offers inventory financing for
equipment distributors and dealers and private label financing programs for
vendors.
AT&T, Lucent Technologies Inc. ("Lucent") and NCR Corporation ("NCR")
(AT&T, Lucent and NCR are collectively referred to as the "Former Affiliates")
have collectively been the largest vendor clients of AT&T Capital.
Historically, AT&T Capital has financed (for the customers of the Former
Affiliates) a large volume of the Former Affiliates' telecommunications and
information technology sales. During the fiscal year ended December 31, 1996,
AT&T Capital generated U.S.$1.1 billion of financing volume from Lucent and
NCR related vendor finance activities. Of this financing volume, 76% was
related to Lucent and 24% was related to NCR.
In serving other vendor clients, AT&T Capital strategically focuses on the
telecommunications, information technology, medical, manufacturing, materials
handling, image processing and office equipment sectors. AT&T Capital's vendor
finance products include a variety of customized financing products, sales aid
services (including the training of vendor personnel and point-of-sale
support), private label programs (in which AT&T Capital provides financing to
the vendor's customers under the vendor's name), customer operations support
and interfaces, alternate channel programs (distribution channels not
involving the vendor's direct sales force) and support for value-added
retailers or distributors (retailers or distributors that modify products and
re-sell them).
DIRECT CUSTOMER FINANCE
AT&T Capital directly markets financial products and services to specific
market segments, including small business, structured and technology equipment
finance, short-term instrument and data equipment rentals and consumer
automobile leasing. Direct Customer Finance activities consist of Technology
Finance and Services, Specialized Commercial Finance and Capital Markets.
Technology Finance and Services. AT&T Capital's equipment management
services have included procurement, integration, deployment, tracking and
remarketing of equipment.
Technology assets are the fastest growing segment of the capital equipment
arena. Having identified this opportunity early on, AT&T Capital is now one of
the largest providers of financing and specialized asset
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management services to corporate users of information technology assets. AT&T
Capital develops innovative financing solutions for acquiring, operating and
disposing of high technology assets and capital equipment. It specializes in
structuring flexible solutions for complex transactions to support customers
in multi-vendor environments.
To serve the short-term needs of sophisticated computer users who operate
in periods of peak demand, AT&T Capital also offers rentals of a full range of
high performance computers and test equipment. AT&T Capital serviced such high
profile events as the 1996 Republican and Democratic national conventions and
the 1996 Olympic Games in Atlanta. These services are flexible and responsive
with turnaround time measured in hours to anywhere in the United States, and
AT&T Capital has recently expanded its service area with offices in Canada and
Mexico.
Specialized Commercial Finance. AT&T Capital has leveraged its large
customer base, sophisticated transaction structuring skills, and high volume
transaction processing capabilities to provide specialized financial services
directly to target segments in the commercial finance market. AT&T Capital
targets small and medium-size companies in the United States with products
including small business administration ("SBA") loans, asset-based loans,
franchise financing, and other financing products (such as pre-approved credit
lines). AT&T Capital is the second largest lender in the United States
government's SBA program--a U.S.$7.8 billion government guaranteed loan
program. The SBA program was established to provide financing to small
businesses for equipment, land and buildings and inventory. AT&T Capital's SBA
licensed subsidiary, AT&T Capital Small Business Lending Corporation, has been
designated as a preferred lender by the SBA administration in 60 of the SBA's
68 districts. For the year ended December 31, 1996, AT&T Capital provided more
than U.S.$250 million of SBA-guaranteed loans.
Early in 1997, AT&T Capital announced a 50/50 joint venture with American
Express to offer equipment financing opportunities to small businesses,
beginning with American Express' 1.6 million small business customers. The
joint venture was created, in part, to facilitate access to credit for small
businesses. Through a new company, American Express CapitaFinance L.L.C.,
small businesses are able to arrange prompt financing for a wide assortment of
equipment with financing periods generally ranging from one to five years.
Following the purchase of equipment, small businesses simply call a toll-free
telephone number to easily arrange financing. The program combines technology
and marketing in an innovative approach bringing speed and convenience to
small businesses for smaller finance transactions. The new venture combines
the financing expertise and credit skills of AT&T Capital with the marketing
experience of American Express.
Capital Markets. Through its capital markets business, AT&T Capital serves
the structured financing requirements of large companies worldwide. This form
of financing makes maximum use of AT&T Capital's structuring and risk
management skills and allows it to customize transactions to meet customer
needs.
AT&T Capital's experience in technology and financial service markets
brings it many opportunities to enter into business relationships with large,
growth-oriented companies that require big-ticket project and equipment
finance. On these corporate and structured finance transactions, AT&T Capital
will generally provide a total financing solution to the client, which results
in AT&T Capital agreeing to finance a significant portion of the investment
and syndicate the balance to a third party.
AT&T Capital has focused its capital markets initiatives in select sectors,
including transportation, manufacturing, industrial, telecommunications, media
and real estate. To deal effectively with the complexity of many capital
markets projects, AT&T Capital assembles teams that include specialists in
financial structuring, pricing, credit analysis, asset management and
engineering.
During 1996, AT&T Capital financed telecommunications networks in
Indonesia, Canada and the United States, as well as numerous radio properties,
several industrial facilities and select transportation equipment. A new
office opened in Hong Kong is intended to provide a base for developing
project finance ventures in the Asia/Pacific region.
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INTERNATIONAL FINANCE
Although AT&T Capital operates principally in the United States, it has
expanded globally in order to respond to the needs of its vendor clients. AT&T
Capital's international business is managed through four geographic regions:
Canada, Europe, Asia Pacific and Latin America. International expansion has
resulted from a combination of acquisitions, start-up operations and joint
ventures. While AT&T Capital's start-up operations and joint ventures were
primarily focused on supporting global vendor relationships (directly through
vendor channels and indirectly through local distributors), some of its
acquisitions have included specialized commercial and consumer finance
origination capabilities. These acquisitions provided AT&T Capital with an
international infrastructure and growth opportunities.
AT&T Capital began operations in the United Kingdom in 1991, in Canada in
1992, acquired a business in Hong Kong in 1994 and opened offices in Mexico
and Australia in 1994.
Canada--AT&T Capital Canada is one of the largest general equipment lessors
in Canada, providing financing of telecommunications, computing, office and
industrial equipment and consumer automobile leasing throughout Canada. In the
third quarter of 1996, AT&T Capital Canada acquired the operating assets and
lease portfolio of Municipal Leasing Corporation, a Canadian operation which
had approximately U.S.$160 million in assets at the time of the acquisition.
Municipal Leasing Corporation serves the office equipment and automotive
leasing needs of 26,000 customers in Ontario. AT&T Capital Canada provides
ongoing financing support for Lucent as well as other Canadian equipment
vendors and distributors, including Danka Canada, Sony of Canada Broadcast and
Professional Group and Xerox Canada for non Xerox equipment financing.
Europe--In January 1995, AT&T Capital established a European network for
its financial services through the acquisition of the vendor leasing and
finance companies of Banco Central Hispano and certain of its affiliates
located in the United Kingdom, Germany, France, Italy, Belgium, and The
Netherlands. AT&T Capital's expansion to Europe has coincided with the entry
into such markets by AT&T Capital's manufacturer and distributor vendor
clients. As a result, AT&T Capital is able to support a number of vendor
clients requiring cross border financing needs, including such vendors as ATL
(ultrasound equipment), Coherent (laser medical technology), and Perkin-Elmer
(analytical instruments). AT&T Capital's European operations support more than
15 multinational vendors in 13 countries and provide a platform for Lucent's
small ticket equipment financing needs and residual-based operating lease and
rental programs.
Asia Pacific--AT&T Capital's Asia Pacific operations are focused on vendor
programs and other specialty asset finance business. In June 1995, AT&T
Capital acquired an Australian equipment finance company with approximately
U.S.$40 million in assets.
Latin America--Global manufacturers like Lucent and NCR have targeted the
growth opportunities in Latin America, which resulted in AT&T Capital
establishing a strong presence in the region. In 1995, AT&T Capital entered
into a joint venture with Banco Frances, a leading Argentine commercial bank
to operate an equipment leasing operation in Argentina. In Mexico, AT&T
Capital has established vendor relationships with such technology companies as
Sun Microsystems and Sony Professional Products.
RELATIONSHIP WITH THE FORMER AFFILIATES
A significant portion of AT&T Capital's total assets and revenues and a
substantial majority of its net income are attributable to financing provided
by AT&T Capital to customers of the Former Affiliates with respect to the
Former Affiliates' products and, to a lesser extent, transactions with the
Former Affiliates as end-users, primarily with respect to the lease of
information technology and other equipment to them as end-users and the
administration and management of certain leased assets on behalf of AT&T.
In 1993, AT&T Capital entered into a series of agreements with AT&T to
formalize the relationship between the two companies, including the following
three significant agreements, each dated as of June 25, 1993: (i) the AT&T
Operating Agreement, (ii) the Intercompany Agreement, and (iii) the License
Agreement. AT&T
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Capital has executed agreements comparable to the AT&T Operating Agreement
with each of Lucent and NCR. In addition, AT&T Capital has entered into
supplementary agreements with Lucent and NCR pursuant to which Lucent and NCR
have agreed that various provisions of the Intercompany Agreement and the
License Agreement shall apply to them.
The Operating Agreements provide, among other things, that (i) AT&T Capital
serves as the "preferred provider" of financing services and has certain
related and other rights and privileges in connection with the financing of
AT&T, Lucent and NCR equipment to customers and distributors of the Former
Affiliates and (ii) subject to limited exceptions, the Former Affiliates shall
not compete or maintain an ownership interest in any business that competes
with AT&T Capital and its subsidiaries.
In connection with its financing business for Lucent, AT&T Capital provides
an additional incentive, in the form of a sales assistance fee, for Lucent to
assist AT&T Capital in the financing of certain products manufactured or
marketed by Lucent. The sales assistance fee is based on designated
percentages of the aggregate sales prices and other charges ("volumes") of
certain Lucent products financed by AT&T Capital. In January 1997, AT&T
Capital and Lucent agreed to a modified formula for calculating the sales
assistance fee (as well as extension of the transactions that qualify for a
sales assistance fee to those originated in indirect marketing channels and
international transactions) for the remaining years of the term of Lucent's
Operating Agreement (retroactive to 1996). The revised formula doubles the
aggregate annual sales assistance fees from the amounts that would have been
paid if the prior formula had been maintained.
The Intercompany Agreement provides, among other things, that AT&T Capital
will administer for a fee various portfolios of financing and leasing assets,
including certain portfolios which prior to AT&T Capital's initial public
offering had been owned by AT&T Capital. In addition, AT&T Capital provides
certain of the same services for Lucent and NCR.
Pursuant to the License Agreement, AT&T has licensed certain trade names
and service marks, including the "AT&T" trade name, to AT&T Capital for use in
the leasing and financing business of AT&T Capital and certain of its
subsidiaries and, in the case of the "AT&T" trade name, to use as part of the
corporate names of AT&T Capital and certain subsidiaries.
The initial term of each of the Operating Agreements, the Intercompany
Agreement, the License Agreement and the Agreement Supplements is scheduled to
end on August 4, 2000. In addition, AT&T has the right under the License
Agreement, after two years' prior notice, to require AT&T Capital to
discontinue use of the "AT&T" trade name as part of AT&T Capital's corporate
or "doing business" name. As of the date hereof, AT&T has not provided any
such notice.
AT&T CAPITAL'S RECENT FINANCIAL PERFORMANCE
For the nine month period ended September 30, 1997, AT&T Capital reported
revenues of U.S.$1.3 billion and net income of U.S.$35.8 million. See
"Unaudited Interim Consolidated Financial Statements of AT&T Capital
Corporation". Portfolio revenue (which includes revenue from finance
receivables and capital leases, and rentals of operating leases) in the first
nine months of 1997 accounted for U.S.$1,041.8 million (or 80.1% of total
revenues), compared to U.S.$1,147.1 million (or 83.7% of total revenues) for
the comparable 1996 period. The decrease in portfolio revenue reflects AT&T
Capital's increased securitizations which produced gains from the sale of
assets and higher service fees. The securitization of U.S.$3.1 billion of
assets in the fourth quarter of 1996 (which resulted in a U.S.$130.4 million
pre-tax gain), higher leverage and the distributions on preferred securities
resulting from AT&T Capital's recapitalization in connection with the Merger
in the fourth quarter of 1996 with Hercules, combined to reduce net income for
the period. Somewhat offsetting these factors were increases in revenue from
securitizations and loan sales, operating lease margin (rental revenue less
depreciation) and other revenue.
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AT&T Capital's significant securitization during the fourth quarter of
1996, together with its post-Merger recapitalization, has resulted in 1997
quarterly income results which are significantly less than the comparable 1996
periods. Net interest margin declined during the period due to the effects of
securitizing higher yielding assets and higher relative interest expense due
to increased leverage associated with AT&T Capital's post-Merger capital
structure. AT&T Capital's securitizations have generally included small-ticket
products having higher yields and margins as compared to larger ticket
products. As securitizations occur, the proportion of these higher yielding
products in AT&T Capital's owned portfolio is reduced, thereby causing a
decrease in yields. Higher yields are not necessarily associated with higher
profitability, since these assets commonly carry higher credit provisions and
servicing costs.
Operating and administrative expenses have increased in 1997 due primarily
to severance payments, certain systems investments and costs associated with
managing a higher level of assets. As a percentage of owned and managed
assets, annualized operating and administrative expenses for the nine months
ended September 30, 1997 were 3.96%, an improvement from 4.03% for the
comparable 1996 period. The Company's objective is to reduce this ratio to
3.5% or lower.
AT&T CAPITAL FUNDING ARRANGEMENTS
AT&T Capital finances its asset finance business, in addition to its
capital resources, through a U.S.$3.0 billion commercial paper program (of
which U.S.$1.9 billion was outstanding at September 30, 1997) and through
medium and long term debt program (of which U.S.$4.9 billion was outstanding
at September 30, 1997). The commercial paper program is supported by a back up
credit facility from a syndicate of lending institutions in the amount of
U.S.$2.0 billion. The medium and long term debt program was established under
AT&T Capital's registration statement filed with the United States Securities
and Exchange Commission (the "SEC") qualifying the issuance of up to U.S.$4.0
billion of debt securities.
DEBT COVENANTS
Included in AT&T Capital's medium term note ("MTN") indenture are debt
covenants, the most significant of which place some limitations on AT&T
Capital's ability to merge or consolidate into other corporations or sell all
or substantially all of its assets. In addition, the MTN indenture debt
covenants limit the issuance of secured debt, subject to numerous exceptions.
PREFERRED SECURITIES
In 1996, Capita Preferred Trust, a newly formed trust sponsored by AT&T
Capital, issued U.S.$200 million of perpetual Trust Originated Preferred
Securities ("TOPrS"). Holders of the TOPrS are entitled to receive cash
distributions at an annual percentage rate of 9.06%, which are guaranteed by
AT&T Capital. The original issue price of each security was U.S.$25 per share.
Distributions on the TOPrS are payable quarterly in arrears on each March 31,
June 30, September 30, and December 31.
Under U.S. GAAP, the TOPrS are called "Company-obligated preferred
securities of subsidiary", since the securities are issued by a consolidated
entity of AT&T Capital. AT&T Capital reports the TOPrS in the mezzanine
section (between Total Liabilities and Shareowners' Equity) of its balance
sheet. Distributions associated with the TOPrS are stated as "Distribution on
Company-obligated preferred securities of subsidiary" on the income statement,
and are tax deductible and paid out of pre-tax earnings. See "Audited
Consolidated Financial Statements of AT&T Capital Corporation".
REVOLVING CREDIT FACILITIES
As at September 30, 1997, AT&T Capital had a U.S.$2.0 billion revolving
credit facility to serve as a back-stop to its commercial paper program of
which U.S.$1.2 billion is in the form of a 364-day term and
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U.S.$0.8 billion is in the form of a 5-year term. AT&T Capital also maintains
foreign bank lines which principally support the daily funding needs of its
overseas businesses.
SECURITIZATION PROGRAMS
In 1996, AT&T Capital established a new funding strategy related to an
increased use of securitization. As part of this initiative, AT&T Capital
expects to securitize approximately one-third of its annual loan originations,
which would be consistent with its ongoing diversified financing strategy to
manage leverage. In addition, securitization represents an economically
attractive means of diversifying AT&T Capital's funding sources.
AT&T Capital's asset profile supports its securitization objectives.
Approximately 60% of its portfolio is small-ticket assets, with an average
transaction size of approximately U.S.$10,000, thereby providing
diversification of risk and liquidity. AT&T Capital has more than 11 years of
experience in originating and servicing these assets, which gives it an
extensive historical database as to loss experience, prepayment history and
asset origination, utilizing prudent underwriting standards.
In October 1996, AT&T Capital completed its first public securitization
through its issue of U.S.$3.1 billion of small-ticket equipment lease-backed
securities through the Capita Equipment Receivables Trust 1996-1. The
transaction, which established AT&T Capital's presence as a significant issuer
of highly diversified small-ticket equipment lease-backed securities, was
greater than the public market's then U.S.$2 billion outstanding balance in
equipment lease-backed securities. The U.S.$3.1 billion securitization
completed in 1996 resulted in a U.S.$130.4 million one-time pre-tax gain for
AT&T Capital.
ASSET/LIABILITY MANAGEMENT
AT&T Capital has established a comprehensive funding and investment policy
while managing interest risk and maintaining adequate liquidity. AT&T
Capital's approach to the management of interest rate and currency risks
includes a matched funding discipline, continual evaluation of assets, review
of liability and capital structure, assessment of funding options and the
monitoring of pricing guidelines. Specifically AT&T Capital:
(i) matches the duration and maturity structure of its liabilities to that
of its portfolio assets;
(ii) actively manages interest rate risk (the risk of earnings volatility
attributable to changes in interest rates) in an effort to protect the
margins on existing transactions; and
(iii) uses derivatives to match-fund its portfolio and thereby manage
interest rate and currency risk.
AT&T Capital generates a substantial portion of its funds to support its
operations from lease and rental receipts, but also uses external financing,
including the public issuance of commercial paper, medium and long-term debt,
asset-backed financing (or securitizations) and bank lines of credit. AT&T
Capital's funding program includes maintaining a broad distribution of
financing sources and expanding the base to minimize undue concentration.
FINANCIAL STATEMENTS RELATING TO THE ACQUISITION
AT&T Capital's audited consolidated financial statements for the three
years ended December 31, 1996, together with the related notes thereto, and
AT&T Capital's unaudited comparative interim consolidated financial statements
for the nine months ended September 30, 1997, are included in this prospectus.
See "Consolidated Financial Statements of AT&T Capital Corporation" and
"Unaudited Interim Consolidated Financial Statements of AT&T Capital
Corporation".
Also included in this prospectus are unaudited pro forma consolidated
financial statements of Newcourt, together with relevant notes, assumptions
and adjustments, as at and for Newcourt's financial year ended December 31,
1996 and as at and for Newcourt's nine months ended September 30, 1997, each
of which reflects the completion on August 29, 1997 of the acquisition of
Commcorp by the Corporation (see "Recent
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Developments"), the completion of the offering of Subscription Rights
contemplated by this prospectus and the completion of the Acquisition of AT&T
Capital by the Corporation. See "Unaudited Pro Forma Consolidated Financial
Statements".
ACQUISITION MERITS AND IMPLICATIONS
POTENTIAL BENEFITS
Size--The combination of Newcourt and AT&T Capital creates one of the
largest providers of vendor finance in the world, and one of the largest
independent non-bank commercial asset finance companies based on assets owned
and managed. Upon completion of the Acquisition, Newcourt's international
origination and servicing capabilities will span 24 countries around the
globe. The Acquisition provides a platform to allow both Newcourt and AT&T
Capital to better serve their respective manufacturing clients in Canada, the
United States, and the United Kingdom and creates new opportunities for
serving Newcourt's clients in Asia Pacific, Europe and Latin America.
Complementary Skills--The businesses are complementary in many respects.
AT&T Capital has a proven record of quality asset management with top-tier
processing skills and systems, a broad range of clients, a solid credit
underwriting performance and a consistent operating history. Newcourt has
demonstrated its ability to originate asset finance business through
innovative financing techniques, focused client service and complementary
product offerings. Both companies have a conservative risk management culture.
Synergies--The two companies also complement each other by providing cost
savings opportunities due to geographic and business segment synergies.
Significant cost savings are anticipated due primarily to the consolidation of
facilities, systems, and functions in Canada, the United States and in the
United Kingdom. AT&T Capital has recently embarked upon implementation of a
cost reduction program. Newcourt's reputation as a low cost provider of asset
finance services should help to ensure the ongoing success of AT&T Capital's
cost reduction program.
Access to International Capital Markets--The combined entity combines the
innovative financing capabilities of Newcourt and its strong funding
relationships with Canadian life insurance companies and banks with AT&T
Capital's public securitization history in the United States and greater
access to foreign markets due to the synergies described above.
IMPLICATIONS OF THE ACQUISITION
While the business combination offers the potential for significant revenue
enhancements and cost savings, the Acquisition presents a number of challenges
and risks to Newcourt upon the completion of the Acquisition and the
integration of the two entities, including:
Financial Performance--AT&T Capital's 1997 year-to-date net income declined
significantly from 1996 results, reflecting reduced portfolio income arising
from AT&T Capital's U.S.$3.1 billion securitization in 1996 and higher
interest costs incurred due to increased leverage and lower credit ratings
following the 1996 Merger and related recapitalization.
Newcourt's origination skills and sales culture are expected to improve
volume growth. In addition, AT&T Capital is targeting to reduce its ratio of
operating expenses to owned and managed assets from approximately 4.0% for the
nine months ended September 30, 1997 to 3.5% or lower over the next few years.
These reductions are expected to result from extensive cost savings programs
and economies of scale in processing operations, administration and
centralized services.
Reliance on Major Customers--AT&T Capital's most significant vendor program
is with Lucent. For the year ended December 31, 1996, Lucent generated over
U.S.$800 million of asset origination volume for AT&T Capital. The agreements
between AT&T Capital and Lucent expire on August 4, 2000. While Lucent has
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consented to the change of control of AT&T Capital upon completion of the
Acquisition, there can be no assurance that the term of the principal
agreements will be extended beyond August 4, 2000. In addition, AT&T Capital
and Newcourt have agreed to negotiate with Lucent to amend the terms of the
Operating Agreement between AT&T Capital and Lucent and to submit a related
proposal to Lucent by December 31, 1997. Such proposal is expected to address
certain economic terms, the scope of business covered by the agreement, the
length of the renewal term and certain other matters, taking into
consideration the terms of other similar AT&T Capital vendor finance program
agreements, with any economic benefits to Lucent arising from any such
amendment being retroactive to October 31, 1997. Any amendment of the terms of
such Operating Agreement could have a material effect on AT&T Capital.
Integration of Businesses--Both AT&T Capital and Newcourt have completed a
number of acquisitions during the past five years. Integration of the two
businesses will require a significant amount of management's time. Managing
the integration of the businesses from a systems, employee and cultural
perspective will be difficult and time consuming.
Residual Assets--AT&T Capital has traditionally retained a larger
proportion of residual assets than Newcourt due to the larger volume of
operating and capital leases generated by AT&T Capital. The anticipated
residual or salvage value of the underlying leased equipment assets may be
less than the fair market value of the equipment while under the lease or off-
lease, or the market value may exceed the expected residual, or salvage value.
The combined entity will place less reliance on residual asset financing.
Although AT&T Capital has historically received proceeds exceeding the
aggregate book value of its residual values, there can be no assurance that
such performance will continue.
Dependence on External Sources of Funding--AT&T Capital's commercial
finance business requires substantial amounts of cash to support its
operations. These cash requirements increase as the volume of AT&T Capital's
owned and managed assets and its servicing portfolio grow.
AT&T Capital's primary cash requirements include: (i) lease and loan
originations, (ii) interest and principal payments on AT&T Capital's
outstanding indebtedness, (iii) ongoing administrative and operating expenses,
(iv) tax payments, and (v) dividend payments on the TOPrS preferred
securities. AT&T Capital's primary sources of liquidity are expected to be (a)
cash generated from operations, (b) the issuance of commercial paper and
medium and long term notes in public markets, (c) public and private
securitizations of its lease and loan receivables, and (d) foreign bank lines
of credit. There can be no assurance that any financing sources will be
available to AT&T Capital or the combined entity following completion of the
Acquisition at any given time or as to the terms on which such financing may
be available. The combined entity's ability to obtain funds and the cost of
such funds could be affected by its credit rating and restrictions contained
in existing or future debt instruments and by other events beyond its control,
such as interest rates, general economic conditions and the perception of its
business, results of operations, leverage, financial condition and business
prospects.
Sensitivity to Ratings on Debt--As a result of the consummation of the
Merger in 1996 and related transactions, three major rating organizations
downgraded their respective ratings on AT&T Capital's short-term and (where
applicable) long-term senior unsecured debt. As a result of such downgradings,
AT&T Capital's costs of borrowing increased in 1997. No assurance can be given
that any or all of such rating organizations will not at any future time or
from time to time establish different ratings on the combined entity's short-
term or long-term debt. To the extent that any of such rating organizations
assign a lower rating than the existing ratings of AT&T Capital and Newcourt,
such downgrading would increase interest expense for the combined entity,
limit its access to its traditional funding sources and reduce its
competitiveness, particularly if any such assigned rating is not investment
grade. In addition, certain ratings downgrades could result in the termination
of one or more of the License Agreements with AT&T, Lucent and NCR. Any such
downgrade could have a material adverse effect on the combined entity's
results of operations and financial condition.
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Securitization Program--AT&T Capital's securitization transactions,
structured as both private conduit programs and the sale of publicly offered
securities, are an important part of AT&T Capital's financing to manage its
leverage ratio and to transfer credit risk. Any delay in the securitization of
finance receivables would cause leverage to fluctuate and postpone the
recognition of the gain on such finance receivables, which could cause AT&T
Capital's net income to fluctuate from period to period.
Potential Conflicts Between Newcourt and AT&T Capital's Vendor
Relationships--Given the number of vendor programs established by both AT&T
Capital and Newcourt, there can be no assurance that conflicts between
Newcourt and AT&T Capital's vendor relationships will not occur. It is
possible that the loss of a large vendor relationship could result in a
material loss of revenue or earnings to the combined company.
International Events and Currency Exchange Rates--Newcourt intends to
pursue growth opportunities in international markets and to follow its vendor
relationships into new and emerging markets. AT&T Capital has pursued this
strategy and has made significant investments into these foreign markets to
establish a presence and to accompany its vendors. To date, AT&T Capital's
international operations have not been profitable.
A significant change in the value of the Canadian dollar against the
currency of one or more countries where substantial revenues or earnings are
recognized may materially adversely affect financial performance of the
combined company. These risks will be managed in a number of ways including
foreign currency contracts, derivative instruments and utilizing local capital
markets to fund the international operations.
RECENT DEVELOPMENTS
On March 11, 1997, pursuant to a prospectus dated February 28, 1997, the
Corporation issued and sold 2,475,000 Common Shares in its capital at a price
of $51.00 per share (prior to giving effect to the subdivision of Newcourt's
Common Shares as described below) for net proceeds of $121,176,000.
Effective April 14, 1997, the Corporation subdivided all of its issued and
outstanding and all of its reserved and unissued Common Shares on a two for
one basis.
On April 29, 1997, the Corporation's Common Shares were listed and posted
for trading on the New York Stock Exchange. Concurrent with such listing, the
Corporation's Common Shares were also registered with the United States
Securities and Exchange Commission pursuant to section 12(b) of the Securities
Exchange Act of 1934.
On August 26, 1997, pursuant to a prospectus dated August 15, 1997, the
Corporation issued and sold 7,260,000 Common Shares in its capital at a price
of $38.50 per share for net proceeds of $268,729,600.
On August 26, 1997, the Corporation filed a replacement prospectus
supplement dated August 26, 1997 to the Corporation's short form shelf
prospectus dated October 17, 1996 increasing the aggregate principal amount of
1996 series medium term notes issuable thereunder from $350,000,000 to
$500,000,000.
On August 29, 1997, the Corporation acquired all of the issued and
outstanding shares of Commcorp, a Canadian asset finance and associated
management service company. The Corporation acquired four finance units of
Commcorp for approximately $366,000,000, of which $89,000,000 was paid in cash
and the remaining $277,000,000 was satisfied by the issuance of 8.2 million
Common Shares. As part of the acquisition, Newcourt acquired established
Commcorp offices in 11 Canadian cities and 510 employees. Newcourt's pro forma
financial statements as at and for the year ended December 31, 1996, which are
included in this prospectus in respect of the proposed Acquisition, reflect
the acquisition of Commcorp by the Corporation. See "Newcourt Credit Group
Inc.--Unaudited Pro Forma Consolidated Financial Statements".
On September 5, 1997, the Corporation acquired the business technology
finance division of Lloyds Bowmaker Limited, an asset finance company based in
the United Kingdom, for an aggregate purchase price of
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$493,000,000. As part of the acquisition, Newcourt acquired $422,000,000 of
asset finance contracts and lease portfolios and 160 employees.
On September 24, 1997, the Corporation issued and sold 1,700,000 Common
Shares at a price of $50.10 per share on a private placement basis to a
Canadian chartered bank. Net proceeds to the Corporation were $85,170,000.
On November 13, 1997, the Corporation filed a short form shelf prospectus
dated November 12, 1997 establishing the Corporation's 1997 series medium term
note program in the aggregate principal amount of $500,000,000.
DETAILS OF THE OFFERING
The total offering consists of 35,000,000 Subscription Rights, each
representing the right to acquire one Common Share of the Corporation. The
Corporation will issue and sell Subscription Rights to the Underwriters at a
price of $46.00 per Subscription Right. The Underwriters will sell Fully Paid
Subscription Rights to the public in both Canada and the United States at a
price of $46.00 per Fully Paid Subscription Right and will sell Instalment
Receipt Subscription Rights to the public in Canada at a price of $47.10 per
Instalment Receipt Subscription Right. The Instalment Receipt Subscription
Rights are being sold by the Underwriters on an instalment basis. The
Financial Institutions have agreed to provide non-recourse financing to the
Underwriters to fund that portion of the Underwriters' cost of the Instalment
Receipt Subscription Rights not funded by the first instalment paid by the
holders acquiring Instalment Receipt Subscription Rights under this offering.
Such financing will be secured by cash collateral pending the Acquisition
Closing, a pledge of the Instalment Receipt Subscription Rights and the
underlying Common Shares when issued on the Acquisition Closing, and an
assignment by way of security of the final instalments payable by holders of
Instalment Receipt Subscription Rights.
SUBSCRIPTION RIGHTS
The following is a summary of the material attributes and characteristics
of the Subscription Rights and of the rights and obligations of registered
holders thereof. This summary does not purport to be complete and reference is
made to the subscription rights agreement to be dated as of the date of
Closing (the "Subscription Rights Agreement") among the Corporation, CIBC Wood
Gundy Securities Inc. on behalf of the Underwriters, Montreal Trust Company of
Canada as depository (the "Depository") and a Canadian chartered bank, as
agent for the Financial Institutions.
The Subscription Rights Agreement will be available for inspection in draft
form prior to Closing and, subsequent to Closing in definitive form until the
completion of distribution, at the principal stock and bond transfer offices
of the Depository in Toronto. For the purposes of this description of the
material attributes and characteristics of the Subscription Rights, a "holder"
means a person who is shown on a register of holders of Subscription Rights.
Subscription Rights will be issued at the Closing pursuant to the
Subscription Rights Agreement. Pursuant to the Subscription Rights Agreement,
the proceeds from the sale of the Subscription Rights (the "Deposited Funds")
will be delivered on behalf of the Corporation to and held by the Depository
and invested in short-term obligations of or guaranteed by the Government of
Canada (and other approved investments) pending the Acquisition Closing, and
prior to the Acquisition Closing will be subject to security interests in
favour of, as applicable, the holders of the Subscription Rights, the
Underwriters and the Financial Institutions. Subscriptions and payment for the
Fully Paid Subscription Rights will be evidenced by transferable Fully Paid
Subscription Right certificates in fully registered form and subscriptions and
payment of the first instalment of the purchase price for Instalment Receipt
Subscription Rights will be evidenced by transferable Instalment Receipt
certificates in fully registered form. Each Subscription Right constitutes an
agreement whereby the holder will acquire one Common Share upon the
Acquisition Closing. If the Acquisition Closing occurs on or before February
27, 1998
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(the "Termination Date"): (i) in the case of Fully Paid Subscription Rights,
Common Shares will be issued to holders of record of such Fully Paid
Subscription Rights as at the Acquisition Closing, and certificates
representing such Common Shares will be delivered to such holders against
presentation and surrender of certificates representing Fully Paid
Subscription Rights; and (ii) in the case of Instalment Receipt Subscription
Rights, Common Shares will be acquired by holders of Instalment Receipt
Subscription Rights pursuant to the Instalment Receipt Subscription Rights
without further action on the part of such holders, the final instalment of
the purchase price of such Common Shares will become payable on December 3,
1998 by the holders of the Instalment Receipt Subscription Rights and the
Instalment Receipts will thereafter represent beneficial ownership of such
Common Shares.
In the event the Acquisition Closing does not occur on or before the
Termination Date, the Subscription Rights will automatically terminate and
holders of Subscription Rights will receive (i) in the case of Fully Paid
Subscription Rights, an amount equal to the subscription price therefor, and
(ii) in the case of Instalment Receipt Subscription Rights, an amount equal to
the first instalment thereon, plus, in either case, interest equal to the
interest actually earned on the investment of such amount between Closing and
the Termination Date, net of any applicable withholding taxes. The balance of
the issue price of the Instalment Receipt Subscription Rights, plus interest
at the rate payable by the Underwriters to the Financial Institutions, will be
payable by the Corporation to the Underwriters and will be paid by the
Corporation, on behalf of the Underwriters, to the Financial Institutions in
repayment in full of the loan by the Financial Institutions referred to above.
Upon such repayment and payment, the Instalment Receipt Subscription Rights
and the related Instalment Receipts shall be cancelled and shall be of no
further force or effect.
On the Acquisition Closing, the security interests in the Deposited Funds
will be released against a notice from the Corporation to the Depository,
confirming that the conditions of the acquisition of the Common Shares
pursuant to the Subscription Rights and the finalization of all matters
relating to the Acquisition Closing have been fulfilled to its satisfaction,
accompanied by a certificate from CIBC Wood Gundy Securities Inc., on behalf
of the Underwriters, to the effect that it has no reason to believe that the
notice from the Corporation to the Depository has not been properly given. The
transfer register with respect to the Fully Paid Subscription Rights shall be
closed at the close of business on the date of the Acquisition Closing. The
Corporation shall, as soon as practicable, issue a press release setting out
the date of the Acquisition Closing and the date on which the Fully Paid
Subscription Rights transfer register will be closed.
The Subscription Rights Agreement will provide for adjustments to the
number of Common Shares that a holder of a Subscription Right is entitled to
acquire pursuant to the Subscription Rights in certain circumstances while the
Subscription Rights remain outstanding pending the Acquisition Closing,
including any subdivision, consolidation or reclassification of the Common
Shares.
No fraction of a Common Share shall be issued upon the exercise of the
Subscription Rights. In lieu of such fraction of a share, the holder will
receive a cash payment which will be equal to the market price of such
fractional right.
HOLDERS OF SUBSCRIPTION RIGHTS ARE NOT SHAREHOLDERS OF THE CORPORATION.
HOLDERS OF FULLY PAID SUBSCRIPTION RIGHTS WILL BE ENTITLED ONLY TO ACQUIRE
COMMON SHARES (AND CERTIFICATES THEREFOR) UPON COMPLETION OF THE ACQUISITION
CLOSING, AND HOLDERS OF INSTALMENT RECEIPT SUBSCRIPTION RIGHTS WILL BE
ENTITLED ONLY TO RECEIVE INSTALMENT RECEIPT CERTIFICATES REPRESENTING THE
INSTALMENT RECEIPT SUBSCRIPTION RIGHTS (AND THE COMMON SHARES TO BE ACQUIRED
PURSUANT TO SUCH INSTALMENT RECEIPT SUBSCRIPTION RIGHTS) OR TO REPAYMENT FROM
THE CORPORATION OF THE SUBSCRIPTION PRICE PAID IN RESPECT OF A FULLY PAID
SUBSCRIPTION RIGHT AND THE AMOUNT OF THE FIRST INSTALMENT IN RESPECT OF AN
INSTALMENT RECEIPT SUBSCRIPTION RIGHT, AND, IN EITHER CASE, PLUS INTEREST
EQUAL TO INTEREST ACTUALLY EARNED ON THE INVESTMENT OF SUCH AMOUNT BETWEEN THE
CLOSING AND THE TERMINATION DATE (NET OF ANY APPLICABLE WITHHOLDING TAX), AS
SET OUT IN THE SUBSCRIPTION RIGHTS AGREEMENT.
Regulatory relief is being sought for and on behalf of the Corporation in
certain Provinces of Canada to permit the distribution of Common Shares to
holders of Subscription Rights upon the automatic exercise of the Subscription
Rights to acquire Common Shares on the Acquisition Closing.
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Certificates in fully registered form will be issued on Closing to
purchasers of Fully Paid Subscription Rights and will be transferable in
Canada at the principal offices of Montreal Trust Company of Canada in
Toronto, Montreal and Vancouver and in the United States at the New York
office of a wholly owned subsidiary of a Canadian chartered bank.
INSTALMENT RECEIPTS
THE INSTALMENT RECEIPTS (AS HEREINAFTER DEFINED) WILL BE OFFERED IN CANADA
AND WILL NOT BE OFFERED OR SOLD IN THE UNITED STATES.
The following is a summary of the material attributes and characteristics
of the instalment receipts representing beneficial ownership of the Instalment
Receipt Subscription Rights (and the Common Shares which will be acquired
pursuant to the Instalment Receipt Subscription Rights on the Acquisition
Closing) (the "Instalment Receipts") and of the rights and obligations of
registered holders thereof. This summary does not purport to be complete and
reference is made to the Instalment Receipt Agreement relating to the
Instalment Receipts to be dated as of the date of Closing (the "Instalment
Receipt Agreement") among the Corporation, CIBC Wood Gundy Securities Inc. on
behalf of the Underwriters, a Canadian chartered bank, as agent for the
Financial Institutions, Montreal Trust Company of Canada (the "Custodian") and
MTCC Security Agent Corporation (the "Security Agent"), which will hold the
Instalment Receipt Subscription Rights and Common Shares pledged to the
Financial Institutions as security for the non-recourse financing provided to
the Underwriters by the Financial Institutions.
The Instalment Receipt Agreement will be available for inspection in draft
form prior to Closing and, subsequent to Closing in definitive form until the
completion of distribution, at the principal stock and bond transfer offices
of the Custodian in Toronto. For the purposes of this description of the
material attributes and characteristics of the Instalment Receipts, a "holder"
means a person who is shown on the register of holders of Instalment Receipts
maintained under the Instalment Receipt Agreement.
The first instalment of $29.00 per Instalment Receipt Subscription Right is
payable on Closing and, if the Acquisition Closing occurs on or before the
Termination Date, the final instalment of $18.10 per Common Share will be
payable on December 3, 1998. The final instalment payment must be received in
full by the Custodian no later than 4:00 p.m. (local time at the place of
payment) on December 3, 1998.
Holders of Instalment Receipts will be bound by the terms of the Instalment
Receipt Agreement. The Instalment Receipt Agreement will provide that legal
title to the Instalment Receipt Subscription Rights (and legal title to the
Common Shares acquired upon the exercise of the Instalment Receipt
Subscription Rights on the Acquisition Closing) will be held by the Custodian
until the final instalment payment has been fully paid to the Custodian on or
before the due date. The Instalment Receipt Subscription Rights, and the
Common Shares acquired pursuant to the Instalment Receipt Subscription Rights
on the Acquisition Closing, will be issued by the Corporation to the
Underwriters and pledged by the Underwriters to the Financial Institutions as
security for the non-recourse financing provided to the Underwriters by the
Financial Institutions and will be held in the possession of the Security
Agent subject to the terms of the Instalment Receipt Agreement. By acquiring
and holding an Instalment Receipt, the holder thereof acknowledges that the
Instalment Receipt Subscription Rights and the underlying Common Shares will
be held as continuing security for the non-recourse financing provided to the
Underwriters by the Financial Institutions and that such security will remain
in effect and be binding and effective notwithstanding any transfer of or
other dealings with the Instalment Receipt and the rights evidenced or arising
thereby.
An Instalment Receipt will, among other things, evidence that the first
instalment has been paid in respect of the number of Instalment Receipt
Subscription Rights (and on the Acquisition Closing, the number of Common
Shares acquired pursuant to the Instalment Receipt Subscription Rights)
specified thereon and the right of the holder thereof, subject to compliance
with the provisions of the Instalment Receipt Agreement, to become the
registered holder of such Common Shares upon payment in full of the final
instalment in respect of such Common Shares.
The Instalment Receipt Agreement will require the Custodian to mail to the
holders of Instalment Receipts thereunder, as determined on a date being not
more than 14 days before the date of mailing, notice of the
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applicable due date for the final instalment and the amount of such
instalment. Such notice will be required to be mailed not less than 30 days
prior to the applicable due date and the Custodian shall also publish
particulars of the notice in major English and French language newspapers in
Canada not later than November 15, 1998. Payment of the final instalment is
required in full when due whether or not a holder receives a notice of the due
date from the Custodian. Subject to compliance with the provisions of the
Instalment Receipt Agreement, as soon as practicable after timely payment of
the final instalment and presentation and surrender of the certificate
evidencing the Instalment Receipt, the Common Shares represented thereby will
be registered in the name of, and a certificate evidencing such Common Shares
will be forwarded to, the holder of the Instalment Receipt without additional
charge.
If the Acquisition Closing has occurred on or before the Termination Date,
a holder of an Instalment Receipt will be entitled to make payment, in
accordance with the provisions of the Instalment Receipt Agreement, of the
final instalment at any time on or prior to December 3, 1998 with respect to
any Common Shares represented thereby and to thereupon become the registered
holder of such Common Shares.
RIGHTS AND PRIVILEGES
Under the Instalment Receipt Agreement, after completion of the Acquisition
Closing, holders of Instalment Receipts will have the same rights and
privileges and be subject to the same limitations as registered holders of
Common Shares of the Corporation, except for certain rights and privileges,
described below, which are limited under the Instalment Receipt Agreement in
order to protect the value of the collateral secured by the pledge to the
Financial Institutions of the Common Shares represented by the Instalment
Receipts or except where the exercise of such rights and privileges would not
be practicable. In particular, after completion of the Acquisition Closing a
holder of Instalment Receipts will be entitled, in the manner set forth in the
Instalment Receipt Agreement, unless such holder has defaulted on its
obligations thereunder, to participate fully in all dividends and other
distributions on the Common Shares represented by such Instalment Receipts, to
exercise the votes attached to the Common Shares represented by such
Instalment Receipts and to receive all information circulars, proxy material,
financial statements and other material sent to holders of Common Shares of
the Corporation in like manner as if the holder were the registered holder of
the Common Shares.
In particular, the Instalment Receipt Agreement will contain the following
provisions with respect to the rights of holders of Instalment Receipts after
the Acquisition Closing:
(a) dividends on Common Shares represented by Instalment Receipts that are
payable in cash will be remitted, net of any applicable withholding
taxes, to persons who, on the applicable record date in respect of such
dividend, are holders of the Instalment Receipts;
(b) dividends on Common Shares represented by Instalment Receipts that are
paid in additional Common Shares ("Stock Dividends") will be registered
in the name of the Custodian and will be held by the Security Agent as
security for the performance of the obligations of the holders of the
Instalment Receipts to pay the final instalment and upon payment of the
final instalment shall be distributed to the holders according to their
entitlement;
(c) if the Corporation issues or distributes (including on liquidation,
dissolution or winding-up of the Corporation) to all, or substantially
all, of the holders of Common Shares any: (i) securities;
(ii) options, rights or warrants to purchase any securities; (iii)
securities convertible into or exchangeable for securities, property
or other assets; (iv) evidences of indebtedness; or (v) other property
or assets, whether of the Corporation or of any other person
(excluding cash dividends, Stock Dividends and securities, cash or
other property issued or delivered pursuant to a Reorganization as
defined in paragraph (d)) (collectively, the "Distributed Property"),
the Custodian will, as promptly as commercially reasonable, sell the
Distributed Property issued or distributed in respect of Common
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Shares represented by Instalment Receipts. The net proceeds from such
sale will firstly be applied pro rata in reduction of the unpaid balance
of the final instalment payable on the Common Shares by all holders. Any
balance remaining will be remitted by the Custodian, net of any
applicable withholding taxes, to the holders according to their
entitlement; and
(d) upon any subdivision, consolidation, reclassification or other change
of the Common Shares or any reorganization, amalgamation, arrangement,
merger, transfer or sale of all, or substantially all, of the assets or
other similar transaction affecting the Corporation (a
"Reorganization"), the appropriate kind and number of shares or other
securities or property resulting from such Reorganization shall be
substituted for the Common Shares represented by an Instalment Receipt,
and will be registered in the name of the Custodian and held by the
Security Agent as security for the non-recourse financing provided to
the Underwriters by the Financial Institutions.
TRANSFER OF INSTALMENT RECEIPTS
Instalment Receipts will be transferable at the principal offices of
Montreal Trust Company of Canada in Toronto, Montreal and Vancouver. Upon
registration of the transfer of an Instalment Receipt, the transferee will
acquire the transferor's rights, subject to the pledge in favour of the
Financial Institutions, and become subject to the obligations of a holder of
Instalment Receipts under the Instalment Receipt Agreement, including the
assumption by the transferee of the obligation to pay the final instalment if
the Acquisition Closing occurs prior to the Termination Date. The person
requesting registration of the transfer of an Instalment Receipt is deemed to
warrant such person's authority to do so as or on behalf of the transferee.
Upon registration of such transfer, the transferor will cease to have any
further rights or obligations thereunder (other than certain obligations
specified in the Instalment Receipt Agreement including any amounts owing to
the Financial Institutions in respect of withholding taxes on distributions).
No transfer of an Instalment Receipt tendered for registration after the due
date for the final instalment will be accepted for registration (except where
an intermediary holds Instalment Receipts on behalf of a non-registered holder
and such non-registered holder has failed to pay the final instalment when
due, or with the express consent of the Financial Institutions).
LIABILITY OF INSTALMENT RECEIPT HOLDERS
Pursuant to the Instalment Receipt Agreement, the Instalment Receipt
Subscription Rights and the underlying Common Shares will be pledged to the
Financial Institutions to secure payment of the non-recourse financing
provided by the Financial Institutions to fund a portion of the Underwriters'
cost of the Instalment Receipt Subscription Rights. If payment of the final
instalment is not duly received in full by the Custodian from a holder of
Instalment Receipts when due, the Instalment Receipt Agreement will provide
that any Common Shares (and any securities or property substituted therefor or
in addition thereto) then remaining pledged under the Instalment Receipt
Agreement may, at the option of the Financial Institutions, subject to
complying with applicable law, be acquired by the Financial Institutions in
full satisfaction of the obligations secured thereby. The Instalment Receipt
Agreement will further provide that the Financial Institutions may direct the
Custodian to sell the Common Shares (and any securities or property
substituted therefor or in addition thereto) in respect of which payment of
the final instalment was not duly received, in accordance with the
requirements of applicable law and of the Instalment Receipt Agreement, and
remit to the holder of the Instalment Receipt the holder's pro rata portion of
the proceeds of such sale after deducting therefrom the amount of the
remaining unpaid instalment, the amount of any applicable withholding taxes
and the holder's pro rata portion of the costs of such sale. THE INSTALMENT
RECEIPT AGREEMENT WILL PROVIDE THAT, UNLESS THE FINANCIAL INSTITUTIONS SHALL
HAVE ACQUIRED THE COMMON SHARES (AND ANY SECURITIES OR PROPERTY SUBSTITUTED
THEREFOR OR IN ADDITION THERETO) IN FULL SATISFACTION OF THE OBLIGATIONS OF A
HOLDER, THE FOREGOING SHALL NOT LIMIT ANY OTHER REMEDIES AVAILABLE TO THE
FINANCIAL INSTITUTIONS AGAINST THE HOLDER OF AN INSTALMENT RECEIPT IN THE
EVENT THE PROCEEDS OF ANY SALE OF COMMON SHARES AND OTHER COLLATERAL ARE
INSUFFICIENT TO COVER THE AMOUNT OF THE FINAL INSTALMENT AND THE COSTS OF SALE
AND, ACCORDINGLY, THE HOLDER SHALL IN SUCH CIRCUMSTANCES REMAIN LIABLE TO THE
FINANCIAL INSTITUTIONS FOR ANY SUCH DEFICIENCY.
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GENERAL
The Custodian may require holders of Instalment Receipts from time to time
to furnish such information and documents as may be necessary or appropriate
to comply with any fiscal or other laws or regulations relating to the Common
Shares or to rights and obligations represented by Instalment Receipts. The
Custodian and the Security Agent shall not be responsible for any taxes,
duties, or other governmental charges or expenses which are or may become
payable in respect of the Instalment Receipts, or the Instalment Receipt
Subscription Rights or the Common Shares represented by the Instalment
Receipts, as the case may be. In this regard, the Custodian and the Security
Agent shall be entitled to deduct or withhold from any payment or other
distribution required or contemplated by the Instalment Receipt Agreement the
appropriate amount of money or property, or to require holders of Instalment
Receipts to make any required payments, and to withhold delivery of
certificates representing the Common Shares from defaulting holders of
Instalment Receipts until satisfactory provision for payment is made in
respect of any non-resident Canadian withholding and other taxes.
The Corporation will be liable for charges and expenses of the Custodian
and the Security Agent except for any taxes, duties or other governmental
charges or expenses which may be payable by holders of Instalment Receipts as
described above.
Apart from the changes which do not materially prejudice the holders of
Instalment Receipts as a group (which may be made by the Custodian without the
consent of such holders), the Instalment Receipt Agreement may not be amended
without the affirmative vote of the holders of Instalment Receipts entitled to
not less than two-thirds of the Common Shares represented by Instalment
Receipts which are represented and voted at a meeting duly called for the
purpose. The procedure for such meetings will be substantially similar to that
governing meetings of holders of Common Shares.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the principal U.S. federal income tax
consequences that may be relevant with respect to the acquisition, ownership
and disposition of the Fully Paid Subscription Rights and the underlying
Common Shares to a holder thereof. This summary does not purport to be a
comprehensive description of all of the tax considerations that may be
relevant to a decision to purchase the Fully Paid Subscription Rights. In
particular, this summary deals only with U.S. Holders (as defined below) that
are initial purchasers of the Fully Paid Subscription Rights and that will
hold the Fully Paid Subscription Rights and the underlying Common Shares as
capital assets, and does not address the tax treatment of special classes of
U.S. Holders, such as dealers or traders in securities or currencies, banks,
insurance companies, tax-exempt entities, persons that will hold the Fully
Paid Subscription Rights and the underlying Common Shares as a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for U.S.
federal income tax purposes, persons that own (or are deemed to own for U.S.
tax purposes) 10% or more (by voting power or value) of the shares of the
Corporation and holders whose "functional currency" is not the U.S. dollar.
As used herein, the term "U.S. Holder" means a holder of Fully Paid
Subscription Rights or the Common Shares who is a citizen of or resident in
the United States, a corporation or partnership created or organized in or
under the laws of the United States or any state thereof (including the
District of Columbia), an estate the income of which is subject to
U.S. federal income taxation regardless of its source or a trust (i) the
administration over which a U.S. court can exercise primary supervision and
(ii) all of the substantial decisions of which one or more United States
persons have the authority to control. Notwithstanding the preceding sentence,
to the extent provided in U.S. Treasury Regulations, certain trusts in
existence on August 20, 1996, and treated as United States persons prior to
such date, that elect to continue to be treated as United States persons also
will be a U.S. Holder.
This summary is based on the tax laws of the United States as in effect on
the date of this Prospectus (including the Internal Revenue Code of 1986, as
amended (the "Code")), judicial decisions, administrative
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pronouncements, and existing and proposed U.S. Treasury Regulations available
as of the date hereof, changes to any of which after the date of this
Prospectus could apply on a retroactive basis and affect the tax consequences
described herein.
Prospective purchasers should consult their own tax advisors as to the tax
consequences of the acquisition, ownership and disposition of the Fully Paid
Subscription Rights and the underlying Common Shares in light of their
particular circumstances, including in particular, the effect of any foreign,
and U.S. state and local tax laws.
Treatment of Subscription Rights
The characterization of the Fully Paid Subscription Rights for U.S. federal
income tax purposes before the Acquisition Closing is not entirely clear.
Before the Acquisition Closing, the Fully Paid Subscription Rights may be
viewed as representing a right to receive Common Shares that are delivered on
or before the Acquisition Closing. Under this view, a U.S. Holder would be
treated as having acquired an interest in the Common Shares on the Acquisition
Closing at a cost equal to the purchase price paid by the U.S. Holder for the
Fully Paid Subscription Rights. If the Common Shares are not delivered by the
Termination Date, any interest payable to U.S. Holders with respect to the
return of the amount paid for the Fully Paid Subscription Rights would be
taxable as ordinary interest income on the Termination Date or when received
by the U.S. Holder, depending on the U.S. Holder's method of tax accounting.
Alternatively, during the period prior to the Acquisition Closing, the
Fully Paid Subscription Rights may be viewed as representing an interest in
the Deposited Funds consisting of the amounts paid for the Fully Paid
Subscription Rights. Under this view, a U.S. Holder's share of the interest
earnings on such Deposited Funds would be taxable as ordinary interest income
at the time it is received by the Depository or accrued, depending on the
U.S. Holder's method of tax accounting, regardless of whether these earnings
were distributed to the U.S. Holder. On the Acquisition Closing, a U.S. Holder
would be deemed to have acquired the Common Shares at a cost equal to the
price paid for the Fully Paid Subscription Rights plus such U.S. Holder's
share of interest earnings on the Deposited Funds.
Dividends on Common Shares
Subject to the discussion below under the caption "Potential Passive
Foreign Investment Company Status," the gross amount of any distribution of
cash (including the amount of any Canadian taxes withheld therefrom) paid to a
U.S. Holder on the Common Shares generally will be subject to U.S. federal
income taxation as foreign source dividend income at the time of receipt, to
the extent paid out of current or accumulated earnings and profits, as
determined under U.S federal income taxation principles. Distributions on the
Common Shares that constitute dividend income will not be eligible for the
dividends received deduction generally allowed to corporations under the Code.
To the extent that the amount of any distribution on the Common Shares exceeds
the Corporation's current and accumulated earnings and profits for a taxable
year, the distribution will first be treated as tax-free return of capital to
the extent of the U.S. Holder's adjusted tax basis in the Common Shares and
will be applied against and reduce such basis. To the extent that such
distribution exceeds the U.S. Holder's adjusted basis in the Common Shares,
the distribution will be taxed as capital gain.
Any such dividend on the Common Shares paid in Canadian dollars will be
included in the gross income of a U.S. Holder in an amount equal to the U.S.
dollar value of the Canadian dollars. The amount of any distribution of
property other than cash will be the fair market value of such property on the
date of distribution.
Sale or Exchange of Common Shares
Subject to the discussion below under the caption "Potential Passive
Foreign Investment Company Status," gain or loss realized by a U.S. Holder on
the sale or exchange of Common Shares will be recognized for U.S. federal
income tax purposes as capital gain or loss in an amount equal to the
difference between the
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U.S. Holder's adjusted tax basis in the Common Shares and the amount realized
on such sale or exchange. In the case of a noncorporate U.S. Holder, the
maximum marginal U.S. federal income tax rate applicable to such gain will be
lower than the maximum marginal U.S. federal income tax rate applicable to
ordinary income if such U.S. Holder's holding period for such Common Shares
exceeds one year and will be further reduced if such Commons Shares were held
for more than 18 months.
Subject to certain limitations, including limitations on U.S. foreign tax
credits generally, a U.S. Holder may elect to deduct in computing its taxable
income, or credit against its U.S. federal income tax liability, Canadian
taxes withheld from dividend paid to the U.S. Holder. For purposes of
calculating the U.S. foreign tax credit, dividends paid by the Corporation
generally will constitute foreign source "passive income", or in the case of
certain U.S. Holders, "financial services income." The calculation of U.S.
foreign tax credits involves the application of rules that depend on a U.S.
Holder's particular circumstances. U.S. Holders of Common Shares should
consult their own tax advisors regarding the application of the U.S. foreign
tax credit rules to distributions made on the Common Shares.
Potential Passive Foreign Investment Company Status
A non-U.S. corporation will be classified as a "passive foreign investment
company" (a "PFIC") for U.S. federal income tax purposes in any taxable year
in which, after applying certain look-through rules, either (i) at least 75%
of its gross income is "passive income" or (ii) on average at least 50% of the
gross value of its assets is attributable to assets that produce "passive
income" or are held for the production of passive income. Passive income for
this purpose generally includes dividends, interest, royalties, rents and
gains from commodities and securities transactions.
Based on its estimate of gross income and the average value of its gross
assets, the Corporation believes that it will not be classified as a PFIC for
its current taxable year. The Corporation's status in future years will depend
on its assets and activities in those years. The Corporation has no reason to
believe that its assets or activities will change in a manner that would cause
it to be classified as a PFIC. If the Corporation were a PFIC, a U.S. Holder
of the Common Shares generally would be subject to potentially punitive
imputed interest charges and other disadvantageous tax treatment with respect
to any gain from the sale or exchange of, and certain distributions with
respect to, the Common Shares. U.S. Holders should consult their own tax
advisors regarding the tax consequences which would arise if the Corporation
were treated as a PFIC.
Information Reporting and Backup Withholding Tax
U.S. information reporting requirements and backup withholding tax
generally will apply to certain payments to certain non-corporate holders of
Common Shares. Information reporting generally will apply to payments of
dividends on, and to proceeds from the sale or redemption of, Common Shares by
a payor within the United States to a holder of Common Shares (other than an
"exempt recipient," which includes corporations and certain other persons). A
payor within the United States will be required to withhold 31% of any payment
of proceeds from the sale or exchange of Common Shares within the United
States to a holder (other than an "exempt recipient") if such holder fails to
furnish its correct taxpayer identification number or otherwise fails to
comply with such backup withholding tax requirements.
Recently-issued Treasury Regulations would modify certain of the rules
discussed above generally with respect to payments on the Common Shares made
after December 31, 1998. In particular, a payor within the United States will
be required to withhold 31% of any payments of dividends on, or proceeds from
the sale of, Common Shares within the United States to a Non-U.S. Holder if
such holder fails to provide an appropriate certification. In the case of such
payments by a payor within the United States to a foreign partnership (other
than payments to a foreign partnership that qualifies as a "withholding
foreign partnership" within the meaning of such Treasury Regulations and
payments to a foreign partnership that are effectively connected with the
conduct of a trade or business in the United States), the partners of such
partnership will be required to provide the certification discussed above in
order to establish an exemption from backup withholding tax and information
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reporting requirements. Moreover, a payor may rely on a certification provided
by a Non-U.S. Holder only if such payor does not have actual knowledge or a
reason to know that any information or certification stated in such
certificate is unreliable.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of the principal Canadian federal income
tax considerations under the Income Tax Act (Canada) (the "Canadian Tax Act"),
to holders who, at all material times, are not resident in Canada and do not
carry on business in Canada for the purposes of the Act and are residents of
the United States and do not have a "permanent establishment" or "fixed base"
in Canada for the purposes of the Canada-United States Income Tax Convention
("U.S. Residents").
If an amount in respect of a Subscription Right is repaid to U.S. Residents
with interest upon the termination of the Subscription Rights in the
circumstances referred to above, such interest will generally be subject to
Canadian withholding tax at the rate of 10%.
Dividends paid or credited or deemed under the Canadian Tax Act to be paid
or credited to a U.S. Resident will generally be subject to withholding tax at
the rate of 15%.
A U.S. Resident will not be subject to tax under the Canadian Tax Act in
respect of any capital gain on the disposition of Subscription Rights or
Common Shares provided that, at no time during the five years immediately
preceding the disposition of the Subscription Rights or Common Shares, 25% or
more of the issued shares of any class of the capital stock of the Corporation
belonged to the U.S. Residents or to persons with whom the U.S. Resident does
not deal at arm's length, or to the U.S. Resident and persons with whom the
U.S. Resident does not deal at arm's length.
The foregoing is not exhaustive of all Canadian federal income tax
consequences and does not take into account or anticipate any changes in law
or administrative or assessing practices in Canada. It is of a general nature
only and is not intended to be, and should not be construed to be, legal or
tax advice to any investor and no representation with respect to the tax
consequences to any investor is made. Potential investors are urged to consult
with their own tax advisors with respect to the tax consequences to them of
holding or disposing of Subscription Rights or Common Shares.
DIVIDENDS
The Corporation's Board of Directors has established a policy to pay
dividends on the Corporation's equity shares (Common Shares and Special
Shares) of between 10% and 20% of the Corporation's after-tax net income
(after providing for the payment of dividends on any of the Corporation's
Preference Shares). Any payment of dividends (including the amounts thereof)
is at the discretion of the Board of Directors and is dependant upon the
Corporation's results of operations, financial conditions and other factors
that the Board of Directors deems relevant.
Since completion of Newcourt's initial public offering of Common Shares in
February 1994, the Corporation has declared and paid a quarterly dividend
(after adjusting for the subdivision of Newcourt's Common Shares--See "Recent
Developments") of $0.025 per equity share (Common and Special Shares) in May,
August and November of 1994 and in February and August of 1995, a quarterly
dividend of $0.030 per equity share in November of 1995 and February, May and
August of 1996, a quarterly dividend of $0.035 per equity share in November,
1996 and February, May and August, 1997 and a quarterly dividend of $0.04 per
equity share in November 1997.
DESCRIPTION OF SHARE CAPITAL
The authorized capital of the Corporation consists of an unlimited number
of Common Shares, Special Shares and Class A Preference Shares.
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COMMON SHARES
Each Common Share of the Corporation is entitled to one vote at meetings of
the shareholders of the Corporation and to receive dividends if, as and when
declared by the Board of Directors. Subject to the prior rights of holders of
Class A Preference Shares, holders of Common Shares will participate equally
in any distribution of the assets of the Corporation upon its liquidation,
dissolution or winding-up.
SPECIAL SHARES
The Special Shares carry exactly the same rights, privileges, restrictions
and conditions of the Common Shares, except that holders of the Special Shares
are not entitled to vote at any meeting of the shareholders of the
Corporation. The holders of such Special Shares are entitled to convert their
Special Shares into Common Shares on a share-for-share basis. There are no
Special Shares outstanding.
CLASS A PREFERENCE SHARES
The Class A Preference Shares are issuable in series. Holders of such
preference shares are not entitled to notice of, or to attend or to vote at,
any meeting of the shareholders of the Corporation, except as may be
specifically provided in the provisions attaching to any series. The Class A
Preference Shares rank senior to the Common Shares and Special Shares with
respect to the payment of dividends and distributions in the event of the
liquidation, dissolution or winding-up of the Corporation. The Board of
Directors of the Corporation is empowered to fix, before the issue thereof,
the number of Class A Preference Shares of each series and the designation,
rights, privileges, restrictions and conditions attaching to the Class A
Preference Shares of each series. There are no Class A Preference Shares
outstanding.
USE OF PROCEEDS
The estimated net proceeds to be received by the Corporation, after
deducting the estimated expenses of issue of $10 million and the Underwriters'
fees of $60,120,387 but prior to the exercise of the Over-Allotment Option,
will be $1,539,879,613.
The Corporation will use $1.5 billion of the net proceeds of the issue to
finance the cash portion of the purchase price for the Acquisition (see
"Acquisition of AT&T Capital Corporation") and the remainder will be used for
working capital and general corporate purposes. The Stock Purchase Agreement
relating to the Acquisition provides that it is subject to certain closing
conditions, including receipt of material regulatory approvals on terms
satisfactory to the Corporation. The net proceeds from the issue and sale of
the Subscription Rights will be held by Montreal Trust Company of Canada as
depository pending the Acquisition Closing. While the Corporation expects to
complete the Acquisition on the terms set out in the Stock Purchase Agreement,
there can be no assurance that it will do so.
PLAN OF DISTRIBUTION
Pursuant to an agreement (the "Underwriting Agreement") dated November 17,
1997 among the Corporation and CIBC Wood Gundy Securities Inc., Goldman Sachs
Canada, Merrill Lynch Canada Inc., ScotiaMcLeod Inc., Midland Walwyn Capital
Inc., Nesbitt Burns Inc., RBC Dominion Securities Inc., Midland Walwyn Capital
Inc. and TD Securities Inc., (collectively the "Underwriters"), the
Corporation has agreed to issue and sell and the Underwriters have severally
agreed to purchase on December 3, 1997 or such later date as the Underwriters
and the Corporation may agree but in any event not later than January 3, 1998,
all but not less than 32,400,000 Subscription Rights at a price of Cdn.$46.00
per Subscription Right, and to offer in the United States 10,000,000 Fully
Paid Subscription Rights offered hereby at a price of Cdn.$46.00 per Fully
Paid Subscription Right. The Underwriting Agreement provides for the
Corporation to pay the Underwriters a fee of Cdn.$1.84 per Fully Paid
Subscription Right sold pursuant to the offering, subject to adjustment
thereof in the event the Acquisition Closing does not occur by the Termination
Date. In addition, the Underwriters have agreed to sell, on an agency basis,
to certain members of management of Newcourt or its affiliates and of AT&T
Capital
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2.6 million Fully Paid Subscription Rights at the same issue price of
Cdn.$46.00 per Fully Paid Subscription Right, for an aggregate purchase price
of Cdn.$119.6 million, for which no fee will be paid to the Underwriters. The
offering price for the Fully Paid Subscription Rights offered hereby has been
determined by negotiation between the Corporation and the Underwriters.
Concurrently with the offering of the Fully Paid Subscription Rights in the
United States, the Corporation is offering Fully Paid Subscription Rights and
Instalment Receipt Subscription Rights in Canada. THE INSTALMENT RECEIPT
SUBSCRIPTION RIGHTS WILL NOT BE OFFERED OR SOLD IN THE UNITED STATES. See
"Details of Offering".
The Underwriting Agreement provides that the Underwriters may, at their
discretion, terminate their obligations thereunder upon the occurrence of
certain stated events. In the Underwriting Agreement, the Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
of the Subscription Rights to be purchased by them pursuant to the
Underwriting Agreement if any of the Subscription Rights being sold pursuant
to the Underwriting Agreement are purchased.
The Corporation has also granted to the Underwriters an Over-Allotment
Option to acquire at the issue price of the Subscription Rights, up to an
aggregate of 3,500,000 additional Subscription Rights in the form of either
Fully Paid Subscription Rights or Instalment Receipt Subscription Rights.
Assuming the Underwriters exercise such option in full for Fully Paid
Subscription Rights, the total issue price will be Cdn.$1,771,000,000, the
total Underwriters' fee will be Cdn.$66,560,387, and the total net proceeds to
the Corporation will be Cdn.$1,694,439,613. The Underwriters may exercise such
Over-Allotment Option in whole or in part at any time up to the Closing of
this offering to cover over-allotments, if any, or for market stabilization
purposes.
Pursuant to policy statements of the Ontario Securities Commission and the
Commission des valeurs mobilieres du Quebec, the Underwriters may not,
throughout the period of distribution under this prospectus, bid for or
purchase Subscription Rights, Instalment Receipts or Common Shares to be
acquired pursuant to such Subscription Rights. The foregoing restriction is
subject to exceptions, on the condition that the bid or purchase not be
engaged in for the purpose of creating actual or apparent active trading in,
or raising the price of, such securities. Such exceptions include a bid or
purchase permitted under the by-laws and rules of The Toronto Stock Exchange
and the Montreal Exchange relating to market stabilization and passive market
making activities and a bid or purchase made for and on behalf of a customer
where the order was not solicited during the period of distribution, provided
that the bid or purchase was not engaged in for the purpose of creating actual
or apparent active trading in, or raising the price of such securities.
Pursuant to the first-mentioned exception, in connection with this offering
and subject to applicable Canadian and United States law, the Underwriters may
over-allot or effect transactions which stabilize or maintain the market price
of such securities at levels other than those which might otherwise prevail on
the open market. Such transactions, if commenced, may be discontinued at any
time.
In connection with the offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Subscription Rights or Common Shares in accordance with Regulation M of the
Securities Exchange Act of 1934, as amended. Specifically, the Underwriters
may overallot the offering, creating a syndicate short position in the
Subscription Rights or the Common Shares for their own account. The
Underwriters may bid for and purchase Subscription Rights or Common Shares in
the open market to cover syndicate short positions. In addition, the
Underwriters may bid for and purchase Subscription Rights or Common Shares in
the open market to stabilize the price of the Subscription Rights or Common
Shares. These activities may stabilize or maintain the market price of the
Subscription Rights or Common Shares above independent market levels. The
Underwriters are not required to engage in these activities, and may end these
activities at any time.
The Instalment Receipts and the Common Shares to be evidenced by the
Instalment Receipts have not been and will not be registered under the United
States Securities Act of 1933, as amended (the "1933 Act"), and may not be
offered or sold in the United States or to, or for the account or benefit of,
U.S. persons as part of the initial distribution of the Instalment Receipts.
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Pursuant to applicable conduct rules (the "Conduct Rules") of the National
Association of Securities Dealers, Inc. ("NASD"), Newcourt is an "affiliate"
(as that term is defined in the Conduct Rules) of CIBC Wood Gundy Securities
Inc., one of the Underwriters. As a result, the offering is being conducted in
accordance with NASD Conduct Rule 2720. As there is a bona fide independent
market for the Common Shares, this offering is being conducted in compliance
with Rule 2720(c)(3) of the Conduct Rules.
In the Underwriting Agreement, the Corporation has agreed to indemnify the
Underwriters in respect of certain liabilities, including liabilities under
the 1933 Act.
PRICE RANGE AND TRADING VOLUME FOR COMMON SHARES
The Common Shares of the Corporation are listed and traded on The Toronto
Stock Exchange, the Montreal Exchange and the New York Stock Exchange. The
following table sets forth the high and low closing sale prices and the
approximate trading volumes for the Newcourt Common Shares on The Toronto
Stock Exchange for the periods indicated:
<TABLE>
<CAPTION>
PRICE RANGE
-------------
APPROXIMATE
HIGH LOW TRADING VOLUME
------ ------ --------------
<S> <C> <C> <C>
1995
First Quarter...................................... $16.50 $15.25 645,153
Second Quarter..................................... 18.50 16.00 1,114,034
Third Quarter...................................... 18.88 17.50 1,318,631
Fourth Quarter..................................... 21.00 16.50 3,639,406
1996
First Quarter...................................... $27.25 $21.00 4,341,977
Second Quarter..................................... 33.65 27.00 3,494,939
Third Quarter...................................... 38.50 31.75 3,758,222
Fourth Quarter..................................... 49.35 36.50 4,895,319
1997
First Quarter...................................... $56.40 $46.00 5,714,681
Second Quarter(1).................................. 37.50 27.45 10,070,619
Third Quarter...................................... 54.75 35.75 14,767,610
October............................................ 55.40 36.00 4,064,575
November (to November 21).......................... 53.00 48.50 5,715,220
</TABLE>
- --------
(1) Effective April 14, 1997, the outstanding Common Shares were subdivided on
a two-for-one basis.
On November 21, 1997, the closing price of the Common Shares on The Toronto
Stock Exchange was Cdn.$48.80. The Corporation's Common Shares were listed on
the New York Stock Exchange on April 29, 1997 and the closing sale price of
the Common Shares on the New York Stock Exchange on November 21, 1997 was
U.S.$34.50.
33
<PAGE>
<PAGE>
ELIGIBILITY FOR INVESTMENT
In the opinion of Blake, Cassels & Graydon, counsel to the Corporation, and
Fasken Campbell Godfrey, counsel to the Underwriters, the Subscription Rights
and the Common Shares which may be acquired pursuant to such Subscription
Rights, if issued on the date hereof, would be qualified investments, as at
such date, under the Income Tax Act (Canada) (the "Tax Act") for trusts
governed by registered retirement savings plans, registered retirement income
funds and deferred profit sharing plans (other than deferred profit sharing
plans to which contribution payments are made by Newcourt or a corporation
with which Newcourt does not deal at arm's length within the meaning of the
Tax Act is an employer) and, assuming that the Tax Act is amended as provided
in Bill C-69 which was introduced in the House of Commons but not passed
during the Second Session, would not be "foreign property" as defined in Part
XI of the Tax Act. No opinion is expressed as to whether the Subscription
Rights or Common Shares will be foreign property in the unlikely event that
the proposed amendments are not enacted.
LEGAL MATTERS
The matters referred to under "Eligibility for Investment" and certain
other legal matters relating to the Subscription Rights offered by this
prospectus will be passed upon by Blake, Cassels & Graydon, Toronto on behalf
of the Corporation and by Fasken Campbell Godfrey, Toronto on behalf of the
Underwriters. Certain matters relating to the Subscription Rights offered by
this prospectus (and the underlying Common Shares) will be passed upon by
White & Case, New York on behalf of the Corporation and Shearman & Sterling,
Toronto and New York, on behalf of the Underwriters. As of November 7, 1997,
the partners and associates of Blake, Cassels & Graydon as a group
beneficially owned, directly or indirectly, less than one per cent of the
outstanding Common Shares of the Corporation. As of November 7, 1997, the
partners and associates of Fasken Campbell Godfrey as a group beneficially
owned, directly or indirectly, less than one per cent of the outstanding
Common Shares of the Corporation.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of the Corporation are Ernst & Young, Chartered Accountants,
Ernst & Young Tower, 222 Bay Street, Toronto, Ontario, M5K 1J7.
The transfer agent and registrar for the Subscription Rights, the
Instalment Receipts and the Common Shares in Canada is Montreal Trust Company
of Canada at its principal transfer office in Toronto, Montreal and Vancouver
and, in the United States, the transfer agent and registrar for the Fully Paid
Subscription Rights and the Common Shares is the New York office of a wholly
owned subsidiary of a Canadian chartered bank.
34
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
F-1
<PAGE>
<PAGE>
COMPILATION REPORT
To the Directors of
Newcourt Credit Group Inc.
We have reviewed, as to compilation only, the accompanying unaudited pro
forma consolidated balance sheets of Newcourt Credit Group Inc. as at
September 30, 1997 and December 31, 1996 and the unaudited pro forma
consolidated statements of income for the nine months ended September 30, 1997
and year ended December 31, 1996. These unaudited pro forma consolidated
financial statements have been prepared solely for inclusion in this
prospectus. In our opinion, these unaudited pro forma consolidated financial
statements have been properly compiled to give effect to the proposed
transactions and the assumptions described in the notes thereto.
November 24, 1997 (Signed) Ernst & Young
Toronto, Canada Chartered Accountants
COMMENTS FOR UNITED STATES READERS ON CANADA
AND UNITED STATES REPORTING DIFFERENCES
The above report, provided solely pursuant to Canadian requirements, is
expressed in accordance with standards of reporting generally accepted in
Canada. Such standards contemplate the expression of an opinion with respect
to the compilation of pro forma financial statements. United States standards
do not provide for the expression of an opinion on the compilation of pro
forma financial statements. To report in conformity with United States
standards on the reasonableness of the pro forma adjustments and their
application to the pro forma financial statements requires an examination or
review substantially greater in scope than the review we have conducted.
Consequently, we are unable to express any opinion in accordance with
standards of reporting generally accepted in the United States with respect to
the compilation of the accompanying unaudited pro forma financial information.
November 24, 1997 (Signed) Ernst & Young
Toronto, Canada Chartered Accountants
F-2
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30,
1997
----------------------
AT&T PRO FORMA PRO FORMA
NEWCOURT CAPITAL ADJUSTMENTS REFERENCE CONSOLIDATED
---------- ----------- ----------- --------- ------------
[NOTE 3]
<S> <C> <C> <C> <C> <C>
ASSETS
Investment in finance
assets................. $2,126,996 $ 3,184,375 $ 5,311,371
Investment in capital
leases................. 6,576,522 6,576,522
Investment in operating
leases................. 203,394 2,319,707 2,523,101
Assets held for
securitization and
syndication............ 987,609 987,609
Investment in affiliated
companies.............. 186,472 186,472
Accounts receivable,
prepaids and other..... 129,470 1,026,634 1,156,104
Fixed assets............ 115,373 115,373
Goodwill................ 401,811 132,457 1,386,793 5(a) 1,921,061
Deferred income taxes... 136,748 136,748
---------- ----------- ---------- -----------
TOTAL ASSETS............ $4,151,125 $13,376,443 $1,386,793 $18,914,361
========== =========== ========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Accounts payable and ac-
crued liabilities...... $ 206,400 $ 671,520 $ 877,920
Debt.................... 2,575,436 11,521,256 14,096,692
Deferred income taxes... 64,519 64,519
Payables to affiliates
and former affiliates.. 60,100 60,100
---------- ----------- -----------
TOTAL LIABILITIES....... 2,846,355 12,252,876 15,099,231
---------- ----------- -----------
MINORITY INTEREST AND
PREFERRED
SECURITIES............. 4,250 277,360 281,610
---------- ----------- -----------
SHAREHOLDERS' EQUITY
Share capital........... 1,174,392 1,252 2,231,748 5(b)(c) 3,407,392
Paid in Capital......... 695,217 (695,217) 5(b)(c) --
Recourse loans to senior
executives............. (22,548) 22,548 5(b)(c) --
Foreign currency trans-
lation................. (4,826) 4,826 5(b)(c) --
Unrealized gain on mar-
ketable securities,
net of taxes........... 8,167 (8,167) 5(b)(c) --
Retained earnings....... 126,128 168,945 (168,945) 5(a) 126,128
---------- ----------- ---------- -----------
TOTAL SHAREHOLDERS' EQ-
UITY................... 1,300,520 846,207 1,386,793 3,533,520
---------- ----------- ---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS'
EQUITY................. $4,151,125 $13,376,443 $1,386,793 $18,914,361
========== =========== ========== ===========
</TABLE>
See accompanying notes
F-3
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(in thousands of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS SIX MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPT. 30/97 APRIL 30/97 SEPT. 30/97
----------- ----------- -----------
AT&T PRO FORMA PRO FORMA
NEWCOURT COMMCORP CAPITAL ADJUSTMENTS REFERENCE CONSOLIDATED
----------- ----------- ----------- ----------- --------- ------------
[NOTE 2] [NOTE 3]
<S> <C> <C> <C> <C> <C> <C>
FEE AND AFFILIATE INCOME
Securitization and syn-
dication fees.......... $109,206 $11,892 $24,579 $145,677
Net income from affili-
ated
companies.............. 6,891 -- -- 6,891
Management fees......... 20,968 13,404 240,847 275,219
-------- ------- ------- --------
137,065 25,296 265,426 427,787
Net rental revenue from
operating leases....... 8,931 -- 282,704 291,635
Net finance income...... 46,225 17,079 87,997 3,750 2(e) 155,051
-------- ------- ------- -------- --------
Total asset finance in-
come................... 192,221 42,375 636,127 3,750 874,473
Operating expenses...... 116,904 28,399 559,549 57,355 2(d),5(d) 762,207
-------- ------- ------- -------- --------
Operating income before
restructuring charge,
taxes and
minority interest...... 75,317 13,976 76,578 (53,605) 122,266
Restructuring charge.... 48,000 48,000
-------- ------- ------- -------- --------
Operating income before
taxes,
minority interest and
distribution........... 27,317 13,976 76,578 (53,605) 64,266
Provision for (recovery
of) income taxes....... (5,818) 6,125 10,514 1,700 12,521
Minority interest and
distribution on pre-
ferred securities...... -- 613 18,704 19,317
-------- ------- ------- -------- --------
NET INCOME FOR THE PERI-
OD..................... $ 33,135 $ 7,238 $47,360 $(55,305) $ 32,428
======== ======= ======= ======== ========
EARNINGS PER COMMON
SHARE.................. 6 $ 0.26
========
</TABLE>
See accompanying notes
F-4
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(in thousands of Canadian dollars)
<TABLE>
<CAPTION>
AS AT DEC. 31, 1996
---------------------------------
PRO FORMA
NEWCOURT/ AT&T PRO FORMA PRO FORMA
NEWCOURT COMMCORP CAPITAL ADJUSTMENTS REFERENCE CONSOLIDATED
---------- ---------- ----------- ----------- --------- ------------
[NOTE 2] [NOTE 3]
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investment in finance
assets................. $ 964,539 $1,189,953 $ 2,855,841 $ 4,045,794
Investment in capital
leases................. 5,683,088 5,683,088
Investment in operating
leases................. 107,738 107,738 1,923,036 2,030,774
Assets held for
securitization and syn-
dication............... 774,000 1,174,000 1,174,000
Investment in affiliated
companies.............. 162,308 186,557 186,557
Accounts receivable..... 36,900 36,900 36,900
Fixed assets............ 40,859 55,136 55,136
Goodwill................ 54,279 268,451 176,306 $1,420,518 5(a) 1,865,275
Other assets............ 23,871 71,918 917,747 989,665
---------- ---------- ----------- ---------- -----------
TOTAL ASSETS............ $2,164,494 $3,090,653 $11,556,018 $1,420,518 $16,067,189
========== ========== =========== ========== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Accounts payable and ac-
crued liabilities...... 93,338 152,578 805,466 958,044
Debt.................... 1,543,144 1,825,406 9,450,719 11,276,125
Deferred income taxes... 12,078 74,792 48,886 123,678
Payables to affiliates
and
former affiliates...... 191,425 191,425
---------- ---------- ----------- -----------
TOTAL LIABILITIES....... $1,648,560 $2,052,776 $10,496,496 $12,549,272
---------- ---------- ----------- -----------
MINORITY INTEREST AND
PREFERRED SECURITIES... 7,201 274,040 281,241
---------- ---------- ----------- -----------
SHAREHOLDERS' EQUITY
Share capital........... 415,160 929,902 1,236 2,204,764 5(b)(c) 3,135,902
Paid in capital......... 686,813 (686,813) 5(b)(c)
Recourse loans to senior
executives............. (21,508) 21,508 5(b)(c)
Foreign currency trans-
lation................. (6,535) 6,535 5(b)(c)
Retained earnings....... 100,774 100,774 125,476 (125,476) 5(a) 100,774
---------- ---------- ----------- ---------- -----------
TOTAL SHAREHOLDERS' EQ-
UITY................... 515,934 1,030,676 785,482 1,420,518 3,236,676
---------- ---------- ----------- ---------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY... $2,164,494 $3,090,653 $11,556,018 $1,420,518 $16,067,189
========== ========== =========== ========== ===========
</TABLE>
See accompanying notes
F-5
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
(in thousands of Canadian dollars, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1996
-----------------------------
PRO FORMA
NEWCOURT/ AT&T PRO FORMA PRO FORMA
NEWCOURT COMMCORP CAPITAL ADJUSTMENTS REFERENCE CONSOLIDATED
-------- --------- ---------- ----------- --------- ------------
[NOTE 2] [NOTE 3]
<S> <C> <C> <C> <C> <C> <C>
FEE AND AFFILIATE INCOME
Securitization and syn-
dication fees.......... $106,514 $123,781 $ 194,625 $ 318,406
Net income from affili-
ated companies......... 8,549 8,549 8,549
Management fees......... 4,140 16,429 263,630 280,059
-------- -------- ---------- ----------
119,203 148,759 458,255 607,014
Net rental revenue from
operating leases....... 7,047 7,047 329,207 336,254
Net finance income...... 45,339 95,431 366,823 462,254
-------- -------- ---------- ----------
Total asset finance in-
come................... 171,589 251,237 1,154,285 1,405,522
Operating expenses...... 107,439 172,794 773,973 71,000 5(d) 1,017,767
-------- -------- ---------- -------- ----------
Income before income
taxes, minority inter-
est and distribution... 64,150 78,443 380,312 (71,000) 387,755
Provision for income
taxes.................. 13,469 26,621 150,082 176,703
Minority interest and
distribution on pre-
ferred securities...... 1,915 4,530 6,445
-------- -------- ---------- ----------
NET INCOME FOR THE YEAR. $ 50,681 $ 49,907 $ 225,700 $(71,000) $ 204,607
======== ======== ========== ======== ==========
EARNINGS PER COMMON
SHARE.................. 6 $ 1.70
==========
</TABLE>
See accompanying notes
F-6
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
Notes to the Unaudited Pro Forma Consolidated Balance Sheets
and Unaudited Pro Forma Consolidated Statements of Income
as at and for the periods ended September 30, 1997 and December 31, 1996
(unaudited)
1.BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheets as at September 30,
1997 and December 31, 1996 and unaudited pro forma consolidated statements of
income for the nine months ended September 30, 1997 and the year ended
December 31, 1996 have been prepared using the following information:
(a) Audited consolidated financial statements of Newcourt for the fiscal
year ended December 31, 1996, which are incorporated by reference in
this prospectus;
(b) Unaudited comparative interim consolidated financial statements of
Newcourt for the nine months ended September 30, 1997, which are
incorporated by reference in this prospectus;
(c) Audited consolidated financial statements of Commcorp Financial
Services Inc. ("Commcorp") for the fiscal year ended October 31, 1996;
(d) Unaudited comparative interim consolidated financial statements of
Commcorp for the six months ended April 30, 1997;
(e) Audited consolidated financial statements of AT&T Capital Corporation
("AT&T Capital") for the fiscal year ended December 31, 1996, which are
included in this prospectus;
(f) Unaudited comparative interim consolidated financial statements of AT&T
Capital for the nine months ended September 30, 1997, which are
included in this prospectus; and
(g) Such other supplementary information as was considered necessary to
reflect the proposed transaction in these pro forma financial
statements.
The unaudited pro forma consolidated financial statements of Newcourt
should be read in conjunction with the consolidated financial statements,
including notes thereto, of Newcourt and AT&T Capital.
The unaudited pro forma consolidated financial statements are not intended
to reflect the results of operations or the financial position that would have
actually resulted had the transaction been effected on the date indicated or
the results which may be obtained in the future.
Certain of the financial statement items of AT&T Capital and Commcorp have
been reclassified to conform to the presentation format used by Newcourt.
2.PRO FORMA NEWCOURT/COMMCORP
On August 29, 1997, Newcourt acquired all of the outstanding shares of
Commcorp in exchange for cash and Newcourt shares totalling $366 million (the
"Commcorp Acquisition"). The Commcorp Acquisition was accounted for as a
purchase and the results of operations of Commcorp have been included in the
results of Newcourt from the date of acquisition. Similarly, the assets and
liabilities of Commcorp have been included in the unaudited interim
consolidated balance sheet of Newcourt as at September 30, 1997. For the
purposes of these unaudited pro forma consolidated financial statements, the
financial position and results of operations of Newcourt and Commcorp ("Pro
Forma Newcourt/Commcorp") have been combined to give effect to the Commcorp
Acquisition as if it had occurred on December 31, 1996 and January 1, 1996 in
the case of the unaudited pro forma consolidated balance sheet as at December
31, 1996 and the unaudited pro forma consolidated statements of income
respectively. Accordingly, the following adjustments have been made to reflect
the acquisition of Commcorp:
(a) Issuance of treasury shares by Newcourt in amount of $277 million to
satisfy a portion of the purchase price.
F-7
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
Notes to the Unaudited Pro Forma Consolidated Balance Sheets
and Unaudited Pro Forma Consolidated Statements of Income
as at and for the periods ended September 30, 1997 and December 31, 1996
(continued)
(unaudited)
(b) Issuance of $254 million of common shares for cash of which $89 million
was used to satisfy the remaining portion of the purchase price.
(c) The difference between the proceeds of the share issue of $243 million
(net of issue costs) and the cash portion of the purchase price of $89
million was used to reduce outstanding debt.
(d) Amortization of goodwill over a twenty year period.
(e) Reduction of interest expense relating to the proceeds of the common
share offering exceeding the cash portion of the purchase price.
The pro forma consolidated statements of Newcourt contained in the
Corporation's prospectus dated August 15, 1997 and comprising the unaudited
pro forma consolidated balance sheet and the unaudited pro forma consolidated
statement of income as at and for the year ended December 31, 1996, and the
related notes and assumptions thereto, which result in the Pro Forma
Newcourt/Commcorp, have been incorporated by reference herein.
3.AT&T CAPITAL CORPORATION
The consolidated financial statements of AT&T Capital as at and for the
nine months ended September 30, 1997 and as at and for the year ended December
31, 1996, included elsewhere in the prospectus, were prepared in accordance
with accounting principles generally accepted in the United States and are
expressed in United States dollars. For the purposes of these unaudited pro
forma consolidated financial statements, the following adjustments have been
made to the consolidated balance sheets and consolidated income statements of
AT&T Capital to conform them to Newcourt's basis of presentation.
(a) 1997 Differences between Accounting Principles Generally Accepted in
Canada and the United States
The financial position and results of operations of AT&T Capital as at
and for the nine months ended September 30, 1997, have been included
herein after giving effect to the adjustments required to conform them
to accounting principles generally accepted in Canada. These
adjustments are described in note 7 to AT&T Capital's unaudited
comparative interim consolidated financial statements for the nine
months ended September 30, 1997 included in this prospectus.
(b) 1996 Differences between Accounting Principles Generally Accepted in
Canada and the United States ("GAAP").
The financial position and results of operations of AT&T Capital as at
and for the year ended December 31, 1996, have been included herein
after giving effect to the following adjustments required to conform
them to accounting principles generally accepted in Canada:
(i) As a result of the reorganization during 1996, certain of the
assets of AT&T Capital were revalued for tax but not for accounting
purposes. Under U.S. GAAP, such revaluation results in additional
deferred taxes which, in this case, were offset by an increase in
additional paid-in capital. Under Canadian GAAP, such deferred
taxes are not recorded. Accordingly, both deferred taxes and
additional paid-in capital were reduced by U.S.$159.6 million for
Canadian GAAP purposes.
(ii) In prior years, AT&T Capital acquired certain companies which, for
U.S. GAAP purposes, were accounted for using the pooling of
interests method. Under Canadian GAAP, such acquisitions would be
accounted for using the purchase method. At December 31, 1996 the
remaining portion
F-8
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
Notes to the Unaudited Pro Forma Consolidated Balance Sheets
and Unaudited Pro Forma Consolidated Statements of Income
as at and for the periods ended September 30, 1997 and December 31, 1996
(continued)
(unaudited)
of unamortized goodwill would have been U.S.$24.1 million. For the
year ended December 31, 1996, additional amortization of goodwill of
U.S.$3.1 million has been recorded for Canadian GAAP purposes.
(iii) In prior years, AT&T Capital entered into several leveraged
leases. Under U.S. GAAP, AT&T Capital discloses its investment in
capital leases net of the related non-recourse debt. For Canadian
GAAP purposes, such lease receivables and non-recourse debt are
disclosed on a gross basis unless a legal right of set-off exists.
Accordingly, for Canadian GAAP purposes, net investment in capital
leases and long-term debt has been increased by U.S.$222.5
million.
(iv) AT&T Capital has investments in several joint ventures which, for
U.S. GAAP purposes, have been accounted for using the equity
method. Under Canadian GAAP, such joint ventures are accounted for
using proportionate consolidation. Accordingly, net investment in
capital leases and long-term debt have been increased by U.S.$63
million and U.S.$12 million respectively and net investment in
finance assets has been reduced by U.S.$51 million (to eliminate
inter-company balances) as at December 31, 1996 for Canadian GAAP
purposes. The adjustment to consolidated revenues and expenses of
AT&T Capital is not significant.
(v) As discussed in the consolidated financial statements of AT&T
Capital, AT&T Capital entered into a number of securitization
transactions during 1996 and in prior years. Under U.S. GAAP, each
of these transactions was accounted for as a sale of receivables.
Under Canadian GAAP, however, certain of these transactions would be
accounted for as financings. Accordingly, net investment in capital
leases and long-term debt was increased by U.S.$213.5 million and
U.S.$198.0 million respectively and other assets and deferred taxes
was decreased by U.S.$22.3 million and U.S.$7.8 million respectively
under Canadian GAAP as at December 31, 1996. In addition, capital
lease revenue was increased by U.S.$51.9 million, revenue from
securitizations was decreased by U.S.$22.2 million, interest expense
was increased by U.S.$25.7 million and other revenue was decreased
by U.S.$3.9 million for Canadian GAAP purposes.
The following tables summarizes the differences between what was reported
by AT&T Capital in its consolidated financial statements under US GAAP and
what has been reflected herein for Canadian GAAP purposes as at and for the
year ended December 31, 1996:
<TABLE>
<CAPTION>
(MILLIONS OF
U.S. DOLLARS)
-------------
<S> <C>
Net income for the year ended December 31, 1996 as reported under
U.S. GAAP....................................................... $168.5
Impact of accounting for securitizations as financings under Ca-
nadian GAAP
Net finance income (net of an adjustment to interest expense of
$25.7).......................................................... 26.2
Securitization and syndication fees.............................. (22.2)
Other Revenue.................................................... (3.9)
Amortization of goodwill related to acquisitions accounted for as
purchases under Canadian GAAP................................... (3.1)
------
Net income for the year ended December 31, 1996 under Canadian
GAAP............................................................ $165.5
======
Shareholders' equity as at December 31, 1996 as reported under
U.S. GAAP....................................................... $707.3
Elimination of merger related deferred tax asset................. (159.6)
Unamortized goodwill related to acquisitions accounted for as
purchases under Canadian GAAP................................... 24.1
Net impact of securitizations reported as financings under Cana-
dian GAAP in prior periods...................................... 1.5
------
Shareholders' equity as at December 31, 1996 under Canadian GAAP. $573.3
======
</TABLE>
F-9
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
Notes to the Unaudited Pro Forma Consolidated Balance Sheets
and Unaudited Pro Forma Consolidated Statements of Income
as at and for the periods ended September 30, 1997 and December 31, 1996
(continued)
(unaudited)
(c) Currency
The consolidated financial statements of AT&T Capital are expressed in
United States dollars. For the purposes of these unaudited pro forma
consolidated financial statements, the consolidated balance sheets of
AT&T Capital have been translated into Canadian dollars using the
December 31, 1996 and the September 30, 1997 exchange rates of 1.3702
and 1.3868, respectively. The consolidated statements of income have
been translated into Canadian dollars using the weighted average
exchange rate for the year ended December 31, 1996 and for the nine
months ended September 30, 1997 of 1.3636 and 1.3763, respectively.
4.PRO FORMA ASSUMPTIONS
For the purposes of these unaudited pro forma consolidated financial
statements, the financial position and the results of operations of Newcourt
and AT&T Capital have been combined to give effect to the acquisition of AT&T
Capital and the related issue of Newcourt Common Shares as if the transactions
had occurred using the following assumptions on the respective balance sheet
dates for each of the unaudited pro forma consolidated balance sheets
presented and on January 1, 1996 for each of the unaudited pro forma
consolidated income statements presented:
(a) The acquisition, pursuant to an agreement dated November 17, 1997,
whereby Newcourt has agreed to purchase all of the issued and
outstanding common shares of AT&T Capital, subject to satisfaction of
certain closing conditions, for approximately $2.2 billion payable as
follows:
(i) $1.45 billion by means of cash payment at closing; and
(ii) $753 million by the issue of approximately 17.2 million Newcourt
Common Shares from treasury at closing.
(b) The acquisition of AT&T Capital has been accounted for using the
purchase method.
The difference between the purchase price and estimated fair value of
the net assets acquired has been allocated to goodwill. The amount
assigned to goodwill will be amortized to income over twenty years.
(c) The issuance of approximately 35 million Subscription Rights pursuant
to this prospectus for net proceeds (after the underwriters' fees and
the expenses of issue) of $1.54 billion and the exercise of such
Subscription Rights for Common Shares.
5.PRO FORMA ADJUSTMENTS
The pro forma adjustments contained in these unaudited pro forma
consolidated financial statements are based on estimates and assumptions by
management of Newcourt based on available information. The adjustments for the
actual acquisition may differ as a result of changes arising from evaluation
of the fair value of AT&T Capital's net assets by Newcourt after the effective
date of acquisition. The following adjustments have been made to reflect the
proposed transactions:
(a) To reflect the purchase of all of the issued and outstanding common
shares of AT&T Capital.
(b) Issuance of treasury shares by Newcourt in amount of $753 million to
satisfy a portion of the purchase price.
(c) Issuance of $1.45 billion of Common Shares by means of this prospectus
which will be used to satisfy the remaining portion of the purchase
price.
(d) Amortization of goodwill over a twenty year period.
F-10
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
Notes to the Unaudited Pro Forma Consolidated Balance Sheets
and Unaudited Pro Forma Consolidated Statements of Income
as at and for the periods ended September 30, 1997 and December 31, 1996
(continued)
(unaudited)
(e) No adjustment has been made for restructuring costs to integrate the
operations of AT&T Capital with Newcourt which are anticipated to be
between $90 and $100 million, after tax. These will be charged to
income as incurred.
6.EARNINGS PER SHARE
Earnings per share reflects the issuance of approximately 52.2 million
Common Shares arising from the acquisition of AT&T Capital and the issuance of
Common Shares pursuant to this prospectus and the issuance of 15 million
Common Shares arising from the acquisition of Commcorp combined with the
average number of Common Shares outstanding (subsequent to the subdivision of
the Common Shares) during the period.
7.FUTURE CHANGES TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA
During 1997, the Accounting Standards Board of 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. The standard may be adopted earlier and must be adopted
retroactively. Had Newcourt adopted the standard effective January 1, 1996,
the adjustment to AT&T Capital's consolidated financial statements described
in note 3(b)(i) herein and in note 7(a)(i) to the unaudited comparative
interim consolidated financial statements of AT&T Capital for the nine months
ended September 30, 1997, would not have been required. Accordingly, goodwill
arising from the acquisition, had it occurred on September 30, 1997, would
have been reduced by approximately $210.0 million ($218.7 million for the year
ended December 31, 1996). In addition, goodwill amortization would have been
reduced and net income would have been increased by $7.9 million for the nine
months ended September 30, 1997 ($10.8 million for the year ended December 31,
1996). Newcourt does not otherwise expect the adoption of the standard to have
a material effect on its financial position or results of operation.
8.ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES
The unaudited pro forma consolidated financial statements have been
prepared using the consolidated financial statements of Newcourt and Commcorp
prepared in accordance with Canadian GAAP and using the consolidated financial
statements of AT&T Capital, adjusted to conform to Canadian GAAP. Had these
unaudited pro forma financial statements been prepared using the U.S. GAAP
results of Newcourt, Commcorp and AT&T Capital, as described in the notes to
each of the respective financial statements, the following balances would have
been reflected in these unaudited pro forma consolidated financial statements:
AS AT AND FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
CANADIAN
U.S. GAAP GAAP
---------- ------------
(MILLIONS OF CANADIAN
DOLLARS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Investment in finance assets............................ $ 4,329 $ 4,046
Assets held for securitization and syndication.......... 2,574 1,174
Goodwill................................................ 1,682 1,865
Debt.................................................... 12,290 11,276
Securitization and syndication fees..................... 349 318
Management fees......................................... 285 280
Net finance income...................................... 427 462
Operating expenses...................................... 1,004 1,018
Net income for the year................................. 218 205
Earnings per Common Share............................... $ 1.80 $ 1.70
</TABLE>
F-11
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
Notes to the Unaudited Pro Forma Consolidated Balance Sheets
and Unaudited Pro Forma Consolidated Statements of Income
as at and for the periods ended September 30, 1997 and December 31, 1996
(continued)
(unaudited)
AS AT AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
CANADIAN
U.S. GAAP GAAP
---------- ------------
(MILLIONS OF CANADIAN
DOLLARS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Investment in finance assets............................ $ 5,538 $ 5,311
Assets held for securitization and syndication.......... 2,267 988
Goodwill................................................ 1,728 1,921
Debt.................................................... 14,084 14,097
Securitization and syndication fees..................... 180 146
Management fees......................................... 285 275
Net finance income...................................... 127 155
Operating expenses...................................... 350 762
Net income for the year................................. 42 32
Earnings per Common Share............................... $ 0.34 $ 0.26
</TABLE>
F-12
<PAGE>
<PAGE>
NEWCOURT CREDIT GROUP INC.
SUPPLEMENT TO THE UNAUDITED
COMPARATIVE INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
F-13
<PAGE>
<PAGE>
RECONCILIATION TO UNITED STATES ACCOUNTING PRINCIPLES
The unaudited interim consolidated financial statements of the Corporation
for the nine months ended September 30, 1997 (the "Interim Statements") were
prepared in accordance with accounting principles generally accepted in Canada
[GAAP]. As required by the regulations of the Securities and Exchange
Commission, the following summarizes the material differences between U.S. and
Canadian GAAP as they apply to the Interim Statements:
(a) 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.
(b) 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.
(c) For Canadian GAAP purposes, finance assets sold to securitization
vehicles are not consolidated for financial reporting. Under U.S. GAAP,
the Corporation is required to consolidate certain of these
securitization vehicles. In addition, U.S. GAAP requires the
Corporation to equity account for its interest in certain other
securitization vehicles. Accordingly, for U.S. GAAP purposes, the
Corporation 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 sheet. The
Corporation will recognize the deferred gains in income as the related
finance assets are collected.
(d) The restructuring charge was reduced for costs that would have been
accrued as an adjustment to the liabilities assumed through the
purchase under U.S. GAAP, rather than expensed as permitted by Canadian
GAAP.
The following tables present the amounts that would have been reported for
U.S. GAAP purposes in 1997 and 1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
(THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net income for the year--Canadian GAAP............. $33,135 $33,110
Difference in accounting for foreign exchange gains
(losses) (net of income taxes recovery of $164
[1996--($895)])................................... (202) 1,103
Difference in accounting for options retired....... (1,100) (163)
Difference in accounting for securitization
transactions (net of income tax
of $268 [1996--$506])............................. 4,188 633
Difference in accounting for restructuring charge
(net of income tax recovery of $15,300 [1996--
Nil].............................................. 18,700 --
------- -------
Net income for the year--U.S. GAAP................. 54,721 34,683
======= =======
Primary and fully diluted earnings per share....... $ 0.81 $ 0.69
======= =======
</TABLE>
F-14
<PAGE>
<PAGE>
CHANGES IN BALANCE SHEET ITEMS, AS COMPUTED UNDER U.S. GAAP:
<TABLE>
<CAPTION>
AS AT
SEPTEMBER 30,
1997
-------------
(THOUSANDS)
<S> <C>
Increase in investment in finance assets.......................... $ 147,744
Increase in accrued liabilities................................... 1,744
Increase in debt.................................................. 1,421,430
Increase in subordinated debt..................................... 19,197
Decrease in other assets.......................................... (3,861)
Increase in assets held for securitization and syndication........ 1,279,000
</TABLE>
CHANGES IN SHAREHOLDERS' EQUITY, AS COMPUTED UNDER U.S. GAAP:
<TABLE>
<CAPTION>
AS AT
SEPTEMBER 30,
1997
-------------
(THOUSANDS)
<S> <C>
Retained earnings, beginning of year.............................. $ 85,966
Net income for the year........................................... 54,721
Dividends paid on common shares................................... (6,681)
----------
Retained earnings, end of year.................................... 134,006
Share capital..................................................... 1,174,392
----------
Total Shareholders' Equity........................................ $1,308,398
==========
</TABLE>
F-15
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-16
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
AS AT AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
* The following Unaudited Interim Consolidated Financial Statements of AT&T
Capital Corporation (except for the unaudited interim consolidated
statements of changes in shareowners' equity), together with the notes
thereto (except note 7), have been obtained from AT&T Capital Corporation's
Form 10-Q for the nine months ended September 30, 1997 filed with the
United States Securities and Exchange Commission under applicable U.S. laws
and regulations.
F-17
<PAGE>
<PAGE>
REVIEW REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AT&T Capital Corporation
We have reviewed the accompanying unaudited interim consolidated balance
sheet of AT&T Capital Corporation and subsidiaries (the "Company") as of
September 30, 1997 and the related unaudited interim consolidated statements
of income, changes in shareowners' equity and cash flows for the nine-month
period then ended. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States.
(Signed) Arthur Andersen LLP
New York, New York
November 24, 1997
F-18
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
AS AT AS AT
SEPTEMBER 30 DECEMBER 31
1997 1996*
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 44,703 $ --
Net investment in finance receivables................ 2,353,302 2,135,250
Net investment in capital leases..................... 3,633,915 3,648,731
Investment in operating leases, net of accumulated
depreciation of $910,137 in 1997 and $777,905 in
1996................................................ 1,669,505 1,403,470
Deferred charges and other assets.................... 837,957 788,935
Deferred income taxes................................ 246,306 116,126
---------- ----------
TOTAL ASSETS......................................... $8,785,688 $8,092,512
========== ==========
LIABILITIES, PREFERRED SECURITIES AND SHAREOWNERS'
EQUITY:
LIABILITIES
Short-term notes, less unamortized discounts of
$20,649 in 1997 and $3,112 in 1996.................. 2,209,121 1,867,247
Income taxes and other payables...................... 475,748 580,575
Payables to affiliates and Former Affiliates......... 41,637 139,706
Medium and long-term debt............................ 5,109,607 4,597,677
---------- ----------
TOTAL LIABILITIES.................................... $7,836,113 $7,185,205
========== ==========
COMMITMENTS AND CONTINGENCIES
Preferred Securities:
Company-obligated preferred securities............... 200,000 200,000
---------- ----------
SHAREOWNERS' EQUITY:
Common stock, one cent par value:
Authorized 150,000,000 shares, issued and outstand-
ing, 90,337,379 shares in 1997 and 90,198,571
shares in 1996.................................... 903 902
Additional paid-in-capital........................... 636,942 633,676
Recourse loans to senior executives.................. (16,259) (15,697)
Unrealized gain on marketable securities, net of tax-
es.................................................. 5,889 --
Foreign currency translation adjustments............. (3,737) (3,502)
Retained earnings.................................... 125,837 91,928
---------- ----------
TOTAL SHAREOWNERS' EQUITY............................ 749,575 707,307
---------- ----------
TOTAL LIABILITIES, PREFERRED SECURITIES AND
SHAREOWNERS' EQUITY................................. $8,785,688 $8,092,512
========== ==========
</TABLE>
- --------
* Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
F-19
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1997 1996*
---------- ----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Finance revenue.......................................... $ 166,417 $ 149,357
Capital lease revenue.................................... 267,773 492,357
Rental revenue on operating leases (a)................... 607,576 505,380
Revenue from securitization and loan sales............... 42,447 13,855
Equipment sales.......................................... 35,127 72,608
Other revenue, net....................................... 181,838 136,937
---------- ----------
TOTAL REVENUES........................................... 1,301,178 1,370,494
---------- ----------
EXPENSES:
Interest................................................. 327,071 350,359
Operating and administrative............................. 402,930 375,172
Depreciation on operating leases......................... 402,367 329,336
Cost of equipment sales.................................. 31,652 61,677
Provision for credit losses.............................. 67,193 71,454
---------- ----------
TOTAL EXPENSES........................................... 1,231,213 1,187,998
---------- ----------
Distributions on Preferred Securities.................... 13,590 --
---------- ----------
Income before income taxes............................... 56,375 182,496
---------- ----------
Provision for income taxes............................... 20,577 67,206
---------- ----------
NET INCOME............................................... $ 35,798 $ 115,290
========== ==========
</TABLE>
- --------
(a) Includes $64,339 and $67,224 for the nine months ended September 30, 1997
and 1996, respectively, from AT&T Corporation, Lucent Technologies Inc.
and NCR Corporation.
* Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
F-20
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
--------------------
1997 1996*
-------- ----------
(UNAUDITED)
<S> <C> <C>
Common stock
Balance at beginning of year............................. $ 902 $ 470
Stock issuances, net..................................... 1 1
-------- ----------
Balance, end of period.................................... 903 471
-------- ----------
Additional Paid-in capital
Balance at beginning of year............................. 633,676 783,244
Stock issuances, net..................................... 4,202 2,919
Other.................................................... (936) --
-------- ----------
Balance, end of period................................... 636,942 786,163
-------- ----------
Recourse loans to senior executives
Balance at beginning of year............................. (15,697) (20,512)
Loans made............................................... (4,679) (411)
Loans repaid............................................. 4,117 --
-------- ----------
Balance, end of period................................... (16,259) (20,923)
-------- ----------
Unrealized gain on marketable securities
Balance at beginning of year............................. -- --
Unrealized gain.......................................... 5,889 --
-------- ----------
Balance, end of period................................... 5,889 --
-------- ----------
Foreign currency translation adjustments
Balance at beginning of year............................. (3,502) (2,173)
Unrealized translation loss.............................. (235) (631)
-------- ----------
Balance, end of period................................... (3,737) (2,804)
-------- ----------
Retained earnings
Balance at beginning of year............................. 91,928 355,096
Net income............................................... 35,798 115,290
Dividends................................................ -- (15,491)
Other.................................................... (1,889) --
-------- ----------
Balance, end of period................................... 125,837 454,895
-------- ----------
Total Shareowners' Equity................................. $749,575 $1,217,802
======== ==========
</TABLE>
- --------
* Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
F-21
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1997 1996*
-------------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income.............................................. $ 35,798 $ 115,290
Non-cash items included in income:
Depreciation and amortization.......................... 440,039 387,183
Deferred taxes......................................... (123,443) (17,034)
Provision for credit losses............................ 67,193 71,454
Revenue from securitizations and loan sales............ (42,447) (13,855)
(Increase) decrease as deferred charges and other as-
sets................................................... 15,860 (63,995)
(Decrease) in income taxes and other payables........... (109,937) (109,789)
(Decrease) increase in payables to Affiliates and Former
Affiliates............................................. (26,935) 1,782
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 256,128 371,036
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of finance asset portfolios.................... -- (148,109)
Financings and lease equipment purchases................ (4,576,049) (4,170,561)
Principal collections from customers.................... 2,516,046 2,999,188
Cash proceeds from securitizations and loan sales....... 959,806 248,720
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES.................. (1,100,197) (1,070,762)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in short-term notes, net....................... 341,875 790,842
Additions to medium and long-term debt.................. 2,327,525 1,288,102
Repayments of medium and long-term debt................. (1,780,628) (1,101,718)
Decrease in payables to affiliates and Former Affili-
ates................................................... -- (247,397)
Dividends paid.......................................... -- (15,490)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 888,772 714,339
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS............... 44,703 14,613
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........ -- 3,961
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............. $ 44,703 $ 18,574
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first nine months of 1997 and 1996, the Company entered into capital
lease obligations of $3,500 and $24,456, respectively, for equipment that was
subleased.
</TABLE>
- --------
* Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
The accompanying notes are an integral part of these Interim Consolidated
Financial Statements.
F-22
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
1.BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by AT&T Capital Corporation and its subsidiaries ("AT&T Capital" or
the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission ("SEC") and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the results of operations, financial position and cash flows
for each period shown. The results for interim periods are not necessarily
indicative of financial results for the full year. These unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
the current year's previously issued Form 10-Qs.
2.RECENT PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. It allows companies to
choose either 1) a fair value method of valuing stock-based compensation plans
which will affect reported net income, or 2) to continue to follow the
existing accounting rules for stock option accounting but disclose what the
impacts would have been had the fair value method been adopted. The Company
adopted the disclosure alternative which requires annual disclosure of the pro
forma net income and earnings per share amounts assuming the fair value method
was adopted on January 1, 1995. As a result, the adoption of this standard did
not have any impact on the Company's consolidated financial statements.
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement requires that liabilities and
derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practical. It also
requires that servicing assets and other retained interests in the transferred
assets be measured by allocating the previous carrying amount between the
assets sold, if any, and retained interests, if any, based on their relative
fair values at the date of the transfer. This statement was effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after December 31, 1996 and its application is prospective. In
December 1996, SFAS No. 127, "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125" was issued. Management does not expect
the adoption of either standard to have a material impact on the Company's
consolidated financial statements.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure". SFAS No. 129, which is applicable to all entities,
requires disclosure of information about the liquidation preference of
preferred stock, redeemable stock, and certain other disclosures. SFAS No. 129
is effective for financial statements for periods ending after December 15,
1997 which for the Company will be 1997. Management does not expect that the
adoption of SFAS No. 129 to have any impact on the Company's consolidated
financial statements.
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 requires total comprehensive income to be reported in a
financial statement. Comprehensive income is defined as the total of net
income and all other non-owner changes in equity. SFAS No. 130 is effective
for financial statements for periods beginning after December 15, 1997 which
for the Company will be 1998. Comparative information for earlier years will
be restated.
In June 1997, the FASB Issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information". SFAS No. 131 establishes a new model
for segment reporting. The Statement requires reporting
F-23
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
(Unaudited)
of financial and descriptive information about its reportable operating
segments. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. It also requires reporting of certain information about
products and services, geographic areas of operation, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997 which for the Company will be 1998. Comparative information
for earlier years will be restated.
3.DERIVATIVE DISCLOSURE
For a discussion regarding the Company's derivatives and related accounting
policies, see Notes 2, 11 and 15 to the Consolidated Financial Statements
included in the Company's 1996 Annual Report filed on Form 10-K. In addition,
the following information is provided pursuant to the SEC's Financial
Reporting Release No. 48 issued in 1997, the purpose of which is to enhance
disclosures regarding derivatives and other financial instruments.
Foreign Currency Forward Exchange Contracts
The Company enters into foreign currency forward exchange contracts to
manage foreign exchange risk (primarily British pounds and Canadian dollars).
In the event of an early termination, sale or extinguishment of such a
contract that is determined to be a hedge, the gain or loss shall continue to
be deferred over the remaining term of the contract. The exchange of the
principal amount under the foreign currency forward exchange contracts is
reflected in the statement of cash flows in the "short-term notes, net" amount
since the underlying amount is generally commercial paper.
Interest Rate Swaps and Currency Swaps
Interest rate swaps and the interest component of the currency swaps
generally include the exchange of interest payments without the exchange of
underlying principal amounts. The difference between the two interest payments
is recorded as an adjustment to interest expense and is reflected in the
statement of cash flows in the "net income" amount. The exchange of the
principal amount under the currency swap is reflected in the statement of cash
flows in the "short-term notes, net" amount since the underlying amount is
generally commercial paper.
4.SUBSIDIARY DEBENTURES
The table below shows summarized consolidated financial information for
AT&T Capital Leasing Services, Inc. and AT&T Capital Services Corporation,
both wholly owned subsidiaries of the Company. The Company has guaranteed, on
a subordinated basis, payment on debentures issued by these subsidiaries.
AT&T CAPITAL LEASING SERVICES, INC.
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Total revenues......................................... $ 98,042 $ 176,342
Interest expense....................................... 32,428 59,653
Operating and administrative expense................... 62,235 61,848
Provision for credit losses............................ 31,179 32,393
Income (loss) before taxes............................. (29,926) 20,719
Net (loss) income...................................... (18,118) 12,477
</TABLE>
F-24
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
(Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Total assets......................................... $829,478 $628,945
Total debt........................................... 729,082 507,180
Total liabilities.................................... 782,540 597,203
Total shareowner's equity............................ 46,938 31,742
</TABLE>
AT&T CAPITAL SERVICES CORPORATION
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1997 1996
----------- -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Total revenues......................................... $ 86,512 $ 81,188
Interest expense....................................... 5,089 3,656
Operating and administrative expenses.................. 34,881 32,620
Provision for credit losses............................ 1,139 --
Income before taxes.................................... 4,983 9,601
Net income............................................. 2,930 5,723
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
Total assets......................................... $149,399 $161,232
Total debt........................................... 112,193 116,545
Total liabilities.................................... 135,186 145,565
Total shareowner's equity............................ 14,213 15,667
</TABLE>
5.SALE OF EQUITY SECURITIES
In October 1997, the Company recognized a pre-tax gain of $12.4 million on
the disposition of certain equity securities. On September 30, 1997, these
securities were classified as available for sale in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
No. 115") and, therefore, the related unrecognized after tax gain of
$5.9 million was included in shareowners' equity. The Company receives equity
securities (e.g., warrants and common stock) in connection with the
structuring of some of its complex capital markets transactions. As
of September 30, 1997, no other such equity security was required to be marked
to market pursuant to SFAS No. 115.
6.SUBSEQUENT EVENTS
On November 4, 1997 the Company announced that it had plans to exit certain
businesses which represent approximately 11% and 9% of the Company's assets
and revenues, respectively, at and for the first nine months of 1997. On
November 6, the Company entered into a definitive agreement for the sale of
one of these businesses, its inventory financing business unit, which
represented 2% and less than 1/2% of the Company's assets and revenues,
respectively, at and for the first nine months of 1997. Management does not
expect to recognize a loss on the sale of these businesses.
F-25
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
(Unaudited)
On November 4, 1997, the Company confirmed that it was engaged in
discussions about a possible business combination with Newcourt Credit Group,
a major asset finance company headquartered in Toronto, Canada ("Newcourt").
On November 4, 1997, Newcourt also confirmed discussions with the Company
regarding a "possible business combination to be financed by equity issued by
Newcourt pursuant to a prospectus and a share exchange with [the Company's]
shareholders". No definitive agreement regarding any such transaction has been
signed at the time of this filing.
Due to such possible business combination, the Company currently is not
issuing medium and long-term debt in the public market. Therefore, subsequent
to September 30, 1997, the Company issued notes of $500 million in aggregate
principal amount to an affiliate to fund interim cash flow requirements.
Because of such possible business combination, one of the Company's rating
agencies, Moody's Investors Service, has placed the Company's rating "On
Review with Direction Uncertain".
7.RECONCLIATION OF FINANCIAL STATEMENTS FROM
U.S. GAAP TO CANADIAN GAAP
The Company's financial statements are prepared in accordance with
generally accepted accounting principles in the U.S. (U.S. GAAP). The
following reconciliation of shareowners' equity as of September 30, 1997 and
the reconciliation of net income and cash flows for the nine months ended
September 30, 1997 summarizes the significant differences in the Company's
financial reporting between U.S. GAAP and Canadian GAAP.
(a) Summary of Significant Differences Between U.S. GAAP and Canadian GAAP
(i) As a result of the reorganization during 1996, certain of the
assets of the Company were revalued for tax but not for accounting
purposes. Under U.S. GAAP, such revaluation results in additional
deferred tax assets which, in this case, were offset by an increase
in additional paid-in-capital. Under Canadian GAAP, such deferred
tax assets are not recorded. Accordingly, deferred tax assets and
additional paid-in capital as of September 30, 1997 were reduced by
$151.4 million and $162.8 million, respectively, for Canadian GAAP
purposes. The difference of $11.4 million reflects the recognition
of such book tax differences and is reflected as an increase to
retained earnings. Approximately $8.1 million of this amount was
recognized during the nine months ended September 30, 1997.
(ii) In prior years, the Company acquired certain companies which, for
U.S. GAAP purposes, were accounted for using the pooling of
interests method. Under Canadian GAAP, such acquisitions would be
accounted for using the purchase method. At September 30, 1997,
the remaining portion of unamortized goodwill would have been
$20.2 million. For the nine months ended September 30, 1997,
additional amortization of goodwill of $2.3 million has been
recorded for Canadian GAAP purposes.
(iii) The Company has entered into several leveraged leases. Under U.S.
GAAP, the Company discloses its investment in capital leases net
of the related non-recourse debt. For Canadian GAAP purposes,
such lease receivables and non-recourse debt are disclosed on a
gross basis unless a legal right of set-off exists. Accordingly,
for Canadian GAAP purposes, net investment in capital leases and
long-term debt has been increased by $202.2 million.
(iv) The Company has investments in several joint ventures which, for
U.S. GAAP purposes, have been accounted for using the equity
method. Under Canadian GAAP, such joint ventures are accounted for
using proportionate consolidation. Accordingly, net investment in
capital leases and
F-26
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
(Unaudited)
long-term debt have been increased by $72.2 million and $6.1 million,
respectively, and net investment in finance assets has been reduced
by $63.9 million (to eliminate inter-company balances) as at
September 30, 1997, for Canadian GAAP purposes. Adjustments to other
balance sheet accounts were not significant. The adjustments to
consolidated revenues and expenses of the Company for the nine months
ended September 30, 1997 were not significant.
(v) As discussed in the consolidated financial statements, the Company
entered into a number of securitization transactions during 1997 and
in prior years. Under U.S. GAAP, each of these transactions was
accounted for as a sale of receivables. Under Canadian GAAP,
however, certain of these transactions would be accounted for as
financings. Accordingly, net investment in capital leases and long-
term debt was increased by $840.2 million and $826.0 million,
respectively, and deferred charges and other assets and shareowners'
equity was decreased by $27.6 million and $8.2 million,
respectively, under Canadian GAAP as at September 30, 1997.
Adjustments to other balance sheet accounts were not significant. In
addition, capital lease revenue and interest expense increased by
$44.6 million and $24.6 million, respectively, and revenue from
securitizations and other revenue decreased by $24.6 million and
$2.8 million, respectively, for Canadian GAAP purposes.
<TABLE>
<CAPTION>
(millions of
U.S. dollars)
(b) Reconciliation of Net Income for the Nine Months Ended September 30,
1997
<S> <C>
Net income for the nine months ended September 30, 1997 as
reported under U.S. GAAP.................................. $ 35.8
Impact of accounting for securitizations as financings and
joint ventures on a pro-rata consolidation basis under Ca-
nadian GAAP
Net finance income (net of a pre-tax adjustment to inter-
est expense of $24.7).................................... 21.3
Securitization and syndication fees....................... (24.6)
Other revenue............................................. (6.8)
Other expenses............................................ (1.9)
Tax effect of the foregoing adjustments................... 4.8
Amortization of goodwill related to acquisitions accounted
for as purchases under Canadian GAAP...................... (2.3)
Tax benefit relating to the realization of the difference
between the October 1, 1996 book and tax balance sheets... 8.1
------
Net income for the nine months ended September 30, 1997 un-
der Canadian GAAP......................................... $ 34.4
======
(c) Reconciliation of Shareowners' Equity at September 30, 1997
Shareowners' equity at September 30, 1997 as reported under
U.S. GAAP................................................. $749.6
Elimination of merger related deferred tax asset........... (151.4)
Unamortized goodwill related to acquisitions accounted for
as purchases under Canadian GAAP.......................... 20.2
Net impact of securitizations reported as financings under
Canadian GAAP............................................. (8.2)
------
Shareowners' equity at September 30, 1997 under Canadian
GAAP...................................................... $610.2
</TABLE>
F-27
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (CONTINUED)
(Unaudited)
(d) Reconciliation of Cash Flows
Increase (decrease) in Cash Flows for the Nine Months Ended September 30,
1997
<TABLE>
<S> <C>
Net Cash from Operating Activities................................ $ 24.5
Net Cash from Investing Activities................................ (538.4)
Net Cash from Financing Activities................................ 513.8
------
Net decrease in Cash and Cash Equivalents....................... $ (0.1)
======
</TABLE>
F-28
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
* The following Consolidated Financial Statements of AT&T Capital
Corporation, together with the notes thereto, have been obtained from AT&T
Capital Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996 filed with the United States Securities and Exchange
Commission under applicable U.S. laws and regulations.
F-29
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareowners of
AT&T Capital Corporation
We have audited the consolidated balance sheets of AT&T Capital Corporation
and Subsidiaries at December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareowners' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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 applicable in the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit 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. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AT&T Capital
Corporation and Subsidiaries at December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles applicable in the United States.
1301 Avenue of Americas Coopers & Lybrand L.L.P.
New York, New York
March 6, 1997
F-30
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
AS AT DECEMBER 31
----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................... $ -- $ 3,961
Net investments in finance receivables.................. 2,135,250 1,800,636
Net investment in capital leases........................ 3,648,731 6,187,131
Net investments in operating leases, net of accumulated
depreciation of $777,905 in 1996 and $642,728 in 1995.. 1,403,470 1,117,636
Deferred charges and other assets....................... 788,935 431,895
Deferred income taxes................................... 116,126 --
Net assets of discontinued operations
---------- ----------
TOTAL ASSETS............................................ $8,092,512 $9,541,259
========== ==========
LIABILITIES, PREFERRED SECURITIES AND SHAREOWNERS'
EQUITY:
Short-term notes, less unamortized discounts of $3,112
in 1996 and $9,698 in 1995............................ 1,867,247 2,212,351
Income taxes and other payables......................... 580,575 581,000
Deferred Income taxes................................... -- 555,296
Payables to Affiliates and Former Affiliates............ 139,706 360,429
Medium and long-term debt............................... 4,597,677 4,716,058
---------- ----------
TOTAL LIABILITIES....................................... $7,185,205 $8,425,134
========== ==========
COMMITMENTS AND CONTINGENCIES
Preferred Securities:
Company-obligated preferred securities of subsidiary... 200,000 --
SHAREOWNERS' EQUITY:
Common stock, one cent par value:
Authorized 150,000,000 shares in 1996 and 100,000,000
in 1995, issued and outstanding, 90,198,571 shares in
1996 and 46,968,810 shares in 1995................... 902 470
Additional paid-in-capital.............................. 633,676 783,244
Recourse loans to senior executives..................... (15,697) (20,512)
Unrealized gain on marketable securities
Foreign currency translation adjustments............... (3,502) (2,173)
Retained earnings...................................... 91,928 355,096
---------- ----------
TOTAL SHAREOWNERS' EQUITY............................... 707,307 1,116,125
---------- ----------
TOTAL LIABILITIES, PREFERRED SECURITIES AND SHAREOWNERS'
EQUITY................................................. $8,092,512 $9,541,259
========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-31
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1996 1995* 1994*
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Finance revenue............................... $ 204,204 $ 174,523 $ 120,800
Capital lease revenue......................... 598,203 586,141 477,875
Rental revenue on operating leases............ 697,020 560,964 475,375
Revenue from securitization and loan sales.... 164,899 16,374 16,311
Equipment sales............................... 90,631 48,724 126,567
Other revenue, net............................ 197,233 190,309 167,151
---------- ---------- ----------
TOTAL REVENUES................................ 1,952,190 1,577,035 1,384,079
========== ========== ==========
EXPENSES:
Interest...................................... 458,039 411,040 271,812
Operating and administrative.................. 564,489 473,663 427,187
Depreciation on operating leases.............. 455,595 354,509 313,583
Cost of equipment sales....................... 78,538 43,370 116,995
Provision for credit losses................... 113,605 86,214 80,888
---------- ---------- ----------
TOTAL EXPENSES................................ 1,670,266 1,368,796 1,210,465
========== ========== ==========
Distribution on Company - obligated preferred
securities of subsidiary..................... 3,322 -- --
Income before income taxes.................... 278,602 208,239 173,614
Provision for income taxes.................... 110,063 80,684 73,278
---------- ---------- ----------
NET INCOME.................................... $ 168,539 $ 127,555 $ 100,336
========== ========== ==========
</TABLE>
- --------
* Certain amounts have been reclassified to conform to the 1996 presentation.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-32
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Common stock
Balance at beginning of year............. $ 470 $ 470 $ 469
Repurchase and retirement of shares in
connection with the Merger.............. (471) -- --
Stock issuances:
New shares issued as a result of the
Merger................................. 902 -- --
Pension and benefit plans................ 1 -- 1
----------- ---------- ----------
Balance at end of year.................... 902 470 470
----------- ---------- ----------
Additional Paid-in capital
Balance at beginning of year............. 783,244 782,785 780,591
Repurchase and retirement of shares in
connection with the Merger.............. (1,660,174) -- --
Stock issuances:
New shares issued as a result of the
Merger................................. 821,583 -- --
Pension and benefit plans............... 1,695 459 2,194
Tax impacts of the Merger:
Capital contribution from Former Affili-
ates for lost tax depreciation......... 279,876 -- --
Reduction of deferred tax liabilities as
a result of Section 338(h)10 election.. 232,929 -- --
Establishment of goodwill-deferred tax
asset as a result of Section 338(h)10
election............................... 161,999 -- --
Establishment of current tax receivable
relating to tax benefit
generated by Hercules buyout of em-
ployee stock options................... 16,011 -- --
Other.................................... (3,487) -- --
----------- ---------- ----------
Balance at end of year................... 633,676 783,244 782,785
----------- ---------- ----------
Recourse loans to senior executives
Balance at beginning of year............. (20,512) (19,651) (17,788)
Loans made............................... (1,381) (2,613) (2,760)
Loans repaid............................. 6,196 1,752 897
----------- ---------- ----------
Balance at end of year................... (15,697) (20,512) (19,651)
----------- ---------- ----------
Foreign currency translation adjustments
Balance at beginning of year............. (2,173) (2,158) (2,603)
Unrealized translation (loss) gain....... (1,329) (15) 445
----------- ---------- ----------
Balance at end of year................... (3,502) (2,173) (2,158)
----------- ---------- ----------
Retained earnings
Balance at beginning of year............. 355,096 246,772 163,774
Repurchase and retirement of shares in
connection with the Merger.............. (416,217) -- --
Net income............................... 168,539 127,555 100,336
Cash dividends paid...................... (15,490) (19,231) (17,338)
----------- ---------- ----------
Balance at end of year................... 91,928 355,096 246,772
----------- ---------- ----------
TOTAL SHAREOWNERS' EQUITY................. $ 707,307 $1,116,125 $1,008,218
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-33
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1996 1995* 1994*
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income.............................. $ 168,539 $ 127,555 $ 100,336
Non-cash items included in income:
Depreciation and amortization.......... 509,957 412,044 353,954
Deferred taxes......................... (269,972) (2,772) 106,384
Provision for credit losses............ 113,605 86,214 80,888
Revenue from securitizations and loan
sales................................. (164,899) (16,374) (16,311)
(Increase) decrease as deferred charges
and other assets....................... (11,274) 26,596 (130,927)
(Decrease) increase in income taxes and
other payables......................... (35,131) 50,362 3,068
Decrease (increase) in payables to
Affiliates and Former Affiliates....... (18,481) (3,509) (10,257)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES............................. 292,344 680,116 487,135
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of businesses, net of cash
acquired............................... (148,109) (294,472) (234,375)
Purchase of finance asset portfolios.... (7,339) (19,769) (217,939)
Financings and lease equipment
purchases.............................. (6,051,483) (5,467,773) (5,031,041)
Principal collections from customers,
net of amounts included in income...... 3,998,239 3,855,592 3,553,620
Cash proceeds from securitizations and
loan sales............................. 3,390,396 291,476 306,406
Increase in payables to affiliates...... 25,451 -- --
----------- ----------- -----------
NET CASH PROVIDED (USED) FOR INVESTING
ACTIVITIES............................. 1,207,155 (1,634,946) (1,623,329)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
(Decrease) increase in short-term notes,
net.................................... (345,104) (207,045) 523,370
Additions to medium and long-term debt.. 2,011,705 2,905,920 2,142,993
Repayments of medium and long-term debt. (2,135,693) (1,828,426) (1,448,470)
(Decrease) increase in payables to
affiliates and Former Affiliates....... (247,400) 53,109 (9,897)
Dividends paid.......................... (15,490) (19,231) (17,338)
Issuance of Company-obligated preferred
securities............................. 200,000 -- --
Proceeds from interim bridge-loan to
fund merger............................ 1,255,286 -- --
Repayment of interim bridge loan to fund
merger................................. (1,255,286) -- --
Repurchase of Company Common Stock...... (2,076,863) -- --
Capital contributions from affiliates
and Former Affiliates.................. 1,101,459 -- --
Other merger related items.............. 3,926 -- --
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................. (1,503,460) 904,327 1,190,658
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................ (3,961) (50,503) 54,464
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD.............................. 3,961 54,464 --
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................. $ -- $ 3,961 $ 54,464
=========== =========== ===========
</TABLE>
Interest paid, including discount on commercial paper, was $443.4 million,
$365.5 million and $254.0 million during 1996, 1995 and 1994, respectively.
Net income taxes paid were $373.5 million, $27.8 million and $55.7 million
during 1996, 1995 and 1994, respectively.
NON CASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with the Merger, additional paid-in capital increased due to
the elimination of deferred tax liabilities of $232.9 million as a result of
the Section 338(h)(10) election under the Internal Revenue Code, as amended,
and similar elections in certain state and local jurisdictions and the
establishment of a deferred tax asset of $162.0 million associated with the
step-up in basis to fair value for tax purposes which was not done for book
purposes ("push-down accounting") due to the Company's significant level of
public debt outstanding. See Notes 1 and 12. Also, certain management members
of the Company exchanged their existing shares of Company common stock for new
shares totalling $29 million. See Note 1.
In 1996, 1995 and 1994, the Company entered into capital lease obligations
of $35.6 million, $105.2 million and $41.4 million, respectively, for
equipment that was subleased. In 1996 and 1995, the Company assumed debt in
conjunction with acquisitions of $3.4 million and $473.0 million,
respectively.
- --------
* Certain amounts have been reclassified to conform to the 1996 presentation.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-34
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of U.S. dollars)
1.THE COMPANY AND BACKGROUND
Description of the Company
AT&T Capital Corporation ("AT&T Capital" or the "Company") is a full
service, diversified equipment leasing and finance company that operates
predominantly in the United States; however, it also has operations in Europe,
Canada, the Asia/Pacific Region, Mexico and South America. The Company
operates primarily in one business segment-equipment leasing and financing.
This segment represents more than 90% of consolidated revenues, net income and
total assets. The Company leases and finances equipment manufactured and
distributed by AT&T ("AT&T"), Lucent Technologies Inc. ("Lucent") and NCR
Corporation ("NCR") (herein, "AT&T/Lucent/NCR" or the "Former Affiliates") and
numerous other companies. The Company also provides inventory financing for
equipment dealers and distributors, Small Business Administration ("SBA")
lending, and equipment management and remarketing services. In addition, the
Company offers its customers high-technology equipment rental and certain
other equipment administration services.
At December 31, 1996, AT&T Capital's portfolio assets were comprised of
general equipment (consists of general office, manufacturing and medical
equipment) aggregating 27%, transportation equipment of 23%, information
technology equipment of 22%, telecommunications equipment totalling 18%, and
real estate of 10%.
AT&T Capital's portfolio assets are diversified among a large customer
base, as well as numerous industries and geographic regions. The Company's
customers are diversified across many industries including manufacturing,
services, communications and retail, as well as many small and mid-size
business customers and federal, state and local governments and their
agencies. At December 31, 1996, on an owned basis, the Company's 98 largest
customers (after AT&T and Lucent) accounted for approximately 24% of the
Company's net portfolio assets, and no customer (with the exception of AT&T
and Lucent) accounted for more than 1% of such net portfolio assets.
Other than AT&T/Lucent/NCR, as of December 31, 1996, management is not
aware of any significant concentration of business transacted with a
particular customer, supplier or lender that could severely impact the
Company's operations. Also, the Company does not have a concentration
regarding the types of financing products or available sources of debt, labour
or services, or licenses or other rights that could severely impact its
operations.
Sale of the Company and Related Transactions
On September 20, 1995, AT&T announced a plan to pursue the public or
private sale of its remaining 86% interest in AT&T Capital. On such date, AT&T
also announced a plan to separate (the "Separation") into three publicly-held
stand-alone global businesses (AT&T, Lucent and NCR). In connection with the
Separation, AT&T sold approximately 17.6% of its equity interest in Lucent in
an initial public offering on April 10, 1996 and spun-off its entire remaining
equity interest in Lucent to AT&T shareowners on September 30, 1996. On
December 31, 1996, AT&T spun off its 100% interest in NCR to AT&T shareowners.
On June 5, 1996, AT&T Capital entered into an Agreement and Plan of Merger
("the Merger Agreement") with AT&T, Hercules and Antigua Acquisition
Corporation ("Antigua"). Hercules is an indirect wholly-owned subsidiary of
GRS Holding Company, Ltd., which owns a U.K. rail leasing business.
On September 30, 1996, the Company, pursuant to a Gross Profit Tax Deferral
Interest Free Loan Agreement (the "GPTD Agreement") between the Company and
AT&T, made a payment of $247.4 million to AT&T for full repayment of such
loans. See Note 12 for additional discussion of GPTD and other tax
implications of the Merger.
On October 1, 1996, the Company completed a merger (the "Merger") pursuant
to which Antigua, a wholly-owned subsidiary of Hercules, was merged with and
into the Company. As a result of the Merger, AT&T
F-35
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Capital's shareowners received $45 in cash for each outstanding share of the
Company's common stock, and Hercules and certain management team members (the
"Management Investors") became the sole owners of the Company's common stock.
The aggregate purchase price for the then outstanding shares of the Company's
outstanding common stock and the aggregate amount necessary to cash-out the
Company's stock options in accordance with the Merger Agreement (the "Merger
Consideration") was approximately $2.2 billion. The Merger Consideration was
comprised of (i) a loan from Goldman Sachs Credit Partners L.P. in the amount
of approximately $1.3 billion, which was to mature on October 30, 1996 and was
repaid by the Company from a portion of the proceeds of a $3.1 billion
offering of equipment receivable-backed securities by affiliates of the
Company on October 15, 1996 (see Note 6) and (ii) equity contributions
(collectively, the "Equity Contributions") represented by (a) capital
contributions of $871 million from Hercules, (b) exchange by the Management
Investors of approximately $29 million and (c) the settlement of approximately
$5 million of recourse loans to senior executives. Also, in connection with
the Merger, the Company, through a consolidated subsidiary, issued to the
public $200 million of company-obligated preferred securities (see Note 9) and
the proceeds of which were used to pay down short term debt.
In connection with the Merger, the Company incurred a $47.6 million expense
relating to the accelerated payout of the Company's Share Performance
Incentive Plan ("SPIP") and other payments to certain officers of the Company
(see Note 13), an $11.0 million expense relating to the Company's Merger
related and other transaction costs offset by a $6.2 million credit related to
the reversal of tax reserves no longer needed as a result of the AT&T tax
indemnity payment described further in Note 12.
On October 15, 1996, the Company securitized $3.1 billion of lease and loan
receivables. As previously noted a portion of the Securitization proceeds were
used to finance the Merger transaction. In connection with the Securitization
the Company recorded an after-tax gain of approximately $79 million. See Note
6 for a further discussion of securitizations.
On October 25, 1996 the Company, through a subsidiary, issued to the public
eight million shares of company-obligated preferred securities for $25 per
share. Holders of the securities will be entitled to receive cash
distributions at an annual rate of 9.06%, which is guaranteed by the Company.
See Note 9 for further discussion of the preferred offering.
Relationship of the Company with the Former Affiliates
In the second quarter of 1996, the Company executed an Operating Agreement
(pursuant to which, among other things, the Company serves as preferred
provider of financing services and has certain related and other rights and
privileges in connection with the financing of equipment to the customers of
AT&T/Lucent/NCR) with each of Lucent and NCR, and entered into letter
agreements with Lucent and NCR regarding the applicability to Lucent and NCR
of specified provisions of a License Agreement (the "License Agreement") and
the Intercompany Agreement (Note 14) between the Company and AT&T (see Note
12). None of the Former Affiliates is required to renew the term of its
Operating Agreement beyond the expiration of the current term on August 4,
2000.
Although the Company will seek to maintain and improve its existing
relationships with Lucent, NCR and AT&T and seek to extend each of the
Operating Agreements beyond August 4, 2000, no assurance can be given that the
Operating Agreements, License Agreements or Intercompany Agreements, will be
extended beyond such date or, if extended, that the terms and conditions
thereof will not be modified in a manner adverse to the Company. Failure to
renew NCR's and Lucent's Operating Agreements on terms not adverse to the
Company could have a material adverse effect on the Company (see the Risk
Factors included in the Company's Management's Discussion and Analysis of
Financial Condition and Results of Operations).
F-36
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Pursuant to the License Agreement, AT&T has licensed to the Company and
certain of its subsidiaries certain trade names and service marks, including
but not limited to the AT&T Capital Corporation, AT&T Credit Corporation, AT&T
Systems Leasing and AT&T Automotive Services names. The License Agreement
provides that AT&T may require (as a result of their disposition of the
Company and upon one year's notice and generally at AT&T's expense) the
Company to discontinue the use of the "AT&T" name as part of its corporate
name. The Company's subsidiaries may, notwithstanding such event, continue to
use the other AT&T licensed names (including NCR) and service marks pursuant
to the License Agreement (e.g., as part of such subsidiaries' corporate names
and for marketing purposes), subject to extensive restrictions on the use
thereof in connection with the issuance of securities and incurrence of
indebtedness. As of the date of these financial statements, AT&T has not made
such request.
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements reflect, and the future consolidated
financial statements of the Company will reflect, the historical cost of the
Company's assets and liabilities. Adjustments to the Company's consolidated
financial statements to reflect the fair value of the Company's assets and
liabilities as of the merger date ("push down" accounting) will not be
reflected due to the existence of substantial publicly traded debt of the
Company.
Consolidation
The accompanying consolidated financial statements include all majority-
owned subsidiaries. The accounts of operations located outside of the United
States are included on the basis of their fiscal years, ended either November
30, or December 31.
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 revenues and expenses during the period reported. Actual
results could differ from those estimates. Significant areas in which
estimates are used include residual values, income taxes, securitization
reserves, allowance for credit losses and contingencies.
Revenue Recognition for Finance Receivables and Capital Leases
For loans and other financing contracts ("Finance Receivables"), revenue is
recognized over the life of the contract using the interest method.
For leases classified as Capital Leases, the difference between (i) the sum
of the minimum lease payments due and the estimated unguaranteed residual
values and (ii) the asset purchase price paid by the Company is initially
recorded as unearned income. The difference is subsequently amortized over the
life of the lease contract and recognized as revenue, using the interest
method.
Accrual of income on portfolio assets is generally suspended when a loan or
a lease becomes contractually delinquent for 90 days or more (or earlier if
deemed necessary). Accrual is resumed when the receivable becomes
contractually current and management believes there is no longer any
significant probability of loss.
F-37
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Investment in Operating Leases
Equipment under Operating Leases is generally depreciated over the
estimated useful life of the asset. During the term of the related lease,
annual depreciation is generally calculated on a straight-line basis on the
estimated residual values at the end of the respective lease terms. Rental
revenue is recognized on a straight-line basis over the related lease terms.
Estimated Unguaranteed Residual Values
Estimated unguaranteed residual values are established upon acquisition and
leasing of the equipment based upon the estimated value of the equipment at
the end of the lease term. They are determined on the basis of studies
prepared by the Company, professional appraisals, historical experience and
industry data. Although it is reasonably possible that a change in the
unguaranteed residual values could occur in the near term, the Company
actively manages its residual values by working with lessees and vendors
during the lease term to encourage lessees to extend their leases or upgrade
and enhance their leased equipment. Residual values are reviewed by the
Company at least annually. Declines in residual values for capital leases are
recognized as an immediate charge to income. Declines in residual values for
operating leases are recognized as adjustments to depreciation expense over
the shorter of the useful life of the asset or the remaining term of the
lease.
Upon the sale or securitization of substantially all of the receivables
associated with a capital lease, the associated residual value is frozen at
its then current book value. Such residual value ceases to accrete to its
estimated value at the end of the lease term.
Allowance for Credit Losses
In connection with the financing of leases and other receivables, the
Company records an allowance for credit losses to provide for estimated losses
in the portfolio. The allowance for credit losses is estimated by management
considering delinquencies and problem assets, an assessment of overall risks
and evaluation of probable losses in the portfolio given its diversification,
and a review of historical loss experience. Although currently deemed adequate
by management, it is reasonably possible that a change in the estimate could
occur in the near term as a result of changes in the above mentioned factors.
The Company's reserve policy is based on an analysis of the aging of the
Company's portfolio, a review of all non-accrual receivables and leases, and
prior collection experience. An account is charged off when analysis indicates
that the account is uncollectible. Additionally, Company policy generally
requires the "at risk" portion (the amount of the receivable not covered by
estimated equipment or other collateral value) of accounts 180 days past due
to be reserved for or charged off.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
Other Assets
The cost of property and equipment is depreciated on a straight-line basis
over their estimated useful lives, which generally range from three to twenty-
five years. Leasehold improvements are amortized over the lesser of the term
of the related lease or the estimated useful lives of the related assets on a
straight-line basis.
Goodwill represents the excess of the cost of companies acquired over the
fair value of their net assets on the date of acquisition, and is amortized as
a charge against income on a straight line basis generally over three to
twenty year periods. Goodwill in excess of associated expected operating cash
flows is considered to be
F-38
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
impaired and is written down to fair value. The accompanying consolidated
balance sheet caption Deferred Charges and Other Assets includes $104.6
million and $114.7 million of goodwill at December 31, 1996 and 1995,
respectively. The accompanying consolidated statements of income caption
Operating and Administrative Expenses includes $12.6 million, $13.2 million
and $10.7 million of goodwill for the years ended December 31, 1996, 1995 and
1994, respectively. See Note 3, "Acquisitions" for discussion of the Company's
recent acquisition activities.
Securitization Recourse Reserves
The Company securitized certain portfolio assets as part of its funding
strategy. The securitization agreements provide for limited recourse to the
Company for certain uncollectible amounts. The Company recorded the present
value of such recourse obligations using a discount rate of 6.5%. These
recourse obligations would have been approximately $3.9 million higher had the
Company not discounted these recourse obligations.
Derivative Financial Instruments
The Company enters into derivative financial instruments, mainly interest
rate swaps and currency swaps, to hedge interest rate and foreign currency
exchange risk and to match fund assets and liabilities. Interest rate swaps
generally involve the exchange of interest payments without the exchange of
underlying notional principal amounts. Currency swaps generally involve both
the exchange of principal and interest payments in distinct currencies. The
criteria which must be satisfied for hedges are as follows: (1) the asset or
liability to be hedged exposes AT&T Capital, as a whole, to interest rate or
currency exchange risk, (2) the derivative acts to reduce the interest rate or
currency exchange risk by reducing the sensitivity to interest rate or
currency exchange movements, and (3) the derivative is designated and
effective as a hedge.
For interest rate swaps, the Company records the net interest to be
received or paid as an adjustment to interest expense. In the event of an
early termination of a swap contract, the gain or loss on swap accounted for
as a hedge is amortized over the remaining life of the related transaction.
The Company does not enter into speculative swaps; however, if the underlying
transaction associated with a swap accounted for as a hedge is terminated
early, the swap is then considered speculative. The gain or loss on a
speculative swap is recognized immediately.
The Company enters into foreign exchange contracts as a hedge against
assets and liabilities denominated in foreign currencies. Gains and losses are
recognized on the contracts and offset foreign exchange gains or losses on the
related assets and liabilities.
Foreign Currency Translation
The financial statements of the Company's foreign operations are translated
into U.S. dollars in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 52, "Foreign Currency Translation", the resulting
translation adjustments are recorded as a separate component of shareowners'
equity. A transaction gain or loss realized upon settlement of a foreign
currency transaction generally is included in determining net income for the
period in which the transaction is settled.
Impairment of Long-Lived Assets
Effective October 1, 1995, the Company adopted SFAS No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of". This standard requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment has occurred when the estimate of
undiscounted future cash flows expected to be generated by the asset is less
F-39
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
than its carrying amount. If an impairment occurred, the measurement of the
impairment is based on the fair value of the asset. Since adoption, no
impairment losses have been recognized.
3.ACQUISITIONS
In the third quarter of 1996, the Company acquired the operating assets and
lease portfolio of Municipal Leasing Corporation. This Canadian operation has
been financing office equipment and automobiles for the past 15 years and had
approximately $160 million in assets at the time of the acquisition.
On January 4, 1995, the Company acquired the vendor leasing and finance
companies of Banco Central Hispano and certain of its affiliates ("CFH Leasing
International") located in the United Kingdom, Germany, France, Italy, Belgium
and the Netherlands. CFH Leasing International provides financial services to
equipment manufacturers and vendors and had approximately $540 million in
assets at the time of acquisition., In addition, on June 30, 1995, the Company
acquired two relatively small businesses, a United States mid-range computer
asset business with approximately $180 million in assets and an Australian
equipment finance company with approximately $40 million in assets. The above
acquisitions were accounted for under the purchase method and the total cash
paid, net of cash acquired, for all of the above was $294.5 million. The
Company assumed certain existing debt associated with these acquisitions. The
results of operations are included in the income statement of the Company from
the respective acquisition dates.
4.NET INVESTMENT IN FINANCE RECEIVABLES AND CAPITAL LEASES
Finance receivables and capital leases consisted of the following:
<TABLE>
<CAPTION>
FINANCE
RECEIVABLES CAPITAL LEASES
---------------------- ----------------------
AT DECEMBER 31, AT DECEMBER 31,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Receivables................. $2,294,054 $1,959,004 $4,056,152 $6,846,834
Estimated unguaranteed re-
sidual values.............. -- -- 380,325 734,140
Unearned income............. (105,289) (104,170) (680,670) (1,230,418)
Allowance for credit losses. (53,515) (54,198) (107,076) (163,425)
---------- ---------- ---------- ----------
Net investment.............. $2,135,250 $1,800,636 $3,648,731 $6,187,131
========== ========== ========== ==========
</TABLE>
For a discussion regarding the Company's securitization activities, see
Notes 1 and 6.
The schedule of maturities at December 31, 1996 for the finance receivables
and capital leases is as follows:
<TABLE>
<CAPTION>
FINANCE CAPITAL
RECEIVABLES LEASES
----------- ----------
<S> <C> <C>
1997................. $ 611,030 $1,658,499
1998................. 313,448 1,096,906
1999................. 217,864 664,340
2000................. 207,054 329,225
2001................. 220,470 144,106
2002 and thereafter.. 724,188 163,076
---------- ----------
Total................ $2,294,054 $4,056,152
========== ==========
</TABLE>
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan", and No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". These standards
require that impaired loans be measured based on the present value of expected
cash flows, discounted at the loan's effective interest rate or, the loan's
observable market price, or the fair value
F-40
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
of the collateral if the loan is collateral dependent, as well as requiring
certain related disclosures. The adoption of these statements did not have a
material effect on the Company's consolidated financial statements. The amount
of impaired loans at December 31, 1996 and 1995 was not material.
5.NET INVESTMENT IN OPERATING LEASES
The following is a summary of equipment under operating leases at December
31, 1996 and 1995, including equipment on lease to Former Affiliates (see
Notes 1 and 14):
<TABLE>
<CAPTION>
AT DECEMBER 31,
----------------------
ORIGINAL EQUIPMENT COST 1996 1995
- ----------------------- ---------- ----------
<S> <C> <C>
Information technology.................................. $ 673,298 $ 628,857
Telecommunications...................................... 557,567 378,426
Transportation.......................................... 550,242 456,575
General equipment and other............................. 354,658 254,984
---------- ----------
2,135,765 1,718,842
Less: Accumulated depreciation.......................... (777,905) (642,728)
Rental receivables, net................................. 45,610 41,522
---------- ----------
Net investment in operating leases...................... $1,403,470 $1,117,636
========== ==========
</TABLE>
Minimum future rentals to be received on non-cancellable operating leases
as of December 31, 1996, are as follows:
<TABLE>
<S> <C>
1997.............................. $ 565,921
1998.............................. 335,728
1999.............................. 180,844
2000.............................. 66,367
2001.............................. 22,296
2002 and thereafter............... 3,330
----------
Total minimum future rentals...... $1,174,486
==========
</TABLE>
6.SECURITIZATIONS AND LOAN SALES
In 1996, the Company securitized approximately $3.4 billion of lease and
loan receivables and recorded a $149.3 million pre-tax gain. Total proceeds
from the 1996 securitizations was approximately $3.1 billion. The 1996
activity includes the Securitization of $3.1 billion of lease and loan
receivables (which includes $0.3 billion of receivables previously sold and
repurchased by the Company). A portion of the Securitization proceeds were
used to finance the Merger transaction (see Note 1). For the years ended
December 31, 1995 and 1994, the Company securitized portions of its capital
lease portfolio amounting to $74.8 million and $259.1 million, with proceeds
received of $86.8 million and $287.6 million, respectively. The Company
recorded pre-tax gains on securitizations of $5.9 million and $14.8 million
for 1995 and 1994, respectively.
Included in other assets at December 31, 1996 and 1995, is approximately
$195.9 million and $61.5 million of retained interests in the securitized
receivables. These retained interests act as a credit enhancement for the
purchasers and are repaid to the Company over the life of the securitized
receivables. The securitization agreements provide for limited recourse to the
Company for any uncollectible amounts. The Company's
F-41
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
maximum exposure under these recourse provisions, in the unlikely event that
all such receivables became uncollectible, amounted to $104.9 million at
December 31, 1996 and $254.8 million at December 31, 1995. A portion of the
gains have been deferred to record an estimate of the losses under recourse
provisions for the lease receivables securitized (see Note 2). Under the
agreements, the Company services these accounts for a fee on behalf of the
purchasers.
At December 31, 1996 and 1995, $2,984.7 million and $559.0 million,
respectively, of receivables previously securitized remained outstanding.
On a periodic basis, the Company sells the guaranteed portion of SBA loans
in the secondary market. The gain on these sales is (1) decreased by an
adjustment to reduce the carrying value of the retained unguaranteed portion
of the loan to its fair value and (2) adjusted for any excess servicing fees
to be received. For the years ended December 31, 1996, 1995 and 1994 the
Company sold approximately $170.2 million, $146.7 million and $15.7 million,
with proceeds received of $184.9 million, $157.2 million, and $19.6 million,
respectively. The Company recorded pre-tax gains on SBA loan sales of $15.6
million, $10.5 million and $1.5 million for 1996, 1995 and 1994, respectively.
7.OTHER REVENUE
Other revenue consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1996 1995* 1994*
-------- -------- --------
<S> <C> <C> <C>
Net gain on sale of leased and off-lease equipment... $ 86,639 $ 86,987 $ 76,453
Portfolio servicing fees............................. 20,303 23,584 27,203
Other fee related revenue............................ 51,449 44,105 38,871
Other portfolio related revenue...................... 38,842 35,633 24,624
-------- -------- --------
Total other revenue.................................. $197,233 $190,309 $167,151
======== ======== ========
</TABLE>
- --------
* Certain amounts have been reclassified to conform to the 1996 presentation.
8.DEBT
Commercial Paper
Commercial paper is generally issued at a discount with the majority
maturing within 90 days. As of December 31, 1996 the maturities of commercial
paper ranged up to 45 days. As of December 31, 1995 the maturities of
commercial paper ranged up to four months. Interest rates ranged from 5.60% to
7.20% and 5.48% to 5.83% at December 31, 1996 and 1995, respectively. The
discount amortized on commercial paper, which reflects the cost of such debt,
amounted to $100.3 million, $94.0 million and $69.3 million in 1996, 1995 and
1994, respectively.
In September 1996, the Company renegotiated its back-up credit facility of
$1.8 billion. This facility, negotiated with a consortium of 24 lending
institutions, supports the commercial paper issued by the Company. At December
31, 1996 this facility was unused. Under the most restrictive provision of the
Company's back-up facility, the Company is required to maintain a minimum
consolidated tangible net worth (based on a formula that includes a portion of
current net income) of $546.9 million at December 31, 1996. The Company is in
compliance with this and all other covenants of the agreement. To meet local
funding requirements, the Company's foreign operations have available lines of
credit of approximately $362.9 million, of which approximately $26.2 million
was available at December 31, 1996. These facilities are generally renewed
annually. Facility fees paid for the revolving and foreign credit arrangements
were not material in 1996 or 1995.
F-42
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Data with respect to short-term notes (principally commercial paper) are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
End of year balance, net................... $1,867,247 $2,212,351 $2,176,877
Weighted average interest rate at December
31,....................................... 6.1% 5.9% 5.8%
Highest month-end balance.................. $3,021,459 $2,212,351 $2,176,877
Average month-end balance (a).............. $2,154,614 $1,921,298 $1,741,872
Weighted average interest rate (b)......... 5.7% 5.3% 4.3%
---------- ---------- ----------
</TABLE>
- --------
(a) The average month-end balance was computed by dividing the total of the
outstanding month-end balances by the number of months.
(b) The weighted average interest rate during the year is calculated by
dividing the interest charged for the year by the average month-end
balance.
Medium and Long-term Debt
Medium and long-term debt outstanding at December 31, 1996 and 1995,
consisted of the following:
<TABLE>
<CAPTION>
MATURITIES 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
4.44%--5.99% Medium-term notes.............. 1996 - 2001 $1,331,900 $ 716,900
6.00%--6.99% Medium-term notes.............. 1996 - 2000 1,621,525 1,466,025
7.00%--8.08% Medium-term notes.............. 1996 - 2005 621,625 1,043,825
Floating rate Medium-term notes
Interest periodically reprices based on var-
ious indices. As of December 31, 1996 and
1995, the average interest rate ranged from
5.47% - 5.65% and 4.93% - 5.74%, respec-
tively..................................... 1996 - 1997 682,000 1,129,500
Other long-term debt........................ 1996 - 2002 340,627 359,808
---------- ----------
Total medium and long-term debt............. $4,597,677 $4,716,058
========== ==========
</TABLE>
The Company's medium and long-term debt matures as follows:
<TABLE>
<S> <C>
1997.............................. $2,418,753
1998.............................. 1,326,375
1999.............................. 611,346
2000.............................. 88,599
2001.............................. 34,773
2002 and thereafter............... 117,831
----------
Total............................. $4,597,677
==========
</TABLE>
To reduce exposure to interest rate movements, the Company enters into
interest rate swap agreements (see Note 15). The weighted average interest
rate on average total debt outstanding, including the effect of these swaps,
was 6.38% and 6.60% for the years ended December 31, 1996 and 1995,
respectively.
During the fourth quarter of 1996, the Company filed with the Securities
and Exchange Commission (the "SEC") a debt registration statement in the
amount of $4.0 billion. The SEC declared this registration statement effective
on January 3, 1997. As of February 28, 1997, the Company had issued $1.2
billion of debt under this registration statement.
F-43
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
In connection with transactions preceding the initial public offering of
the Company's stock in 1993, AT&T issued a guarantee on all of the Company's
debt outstanding at that date. As of December 31, 1996 and 1995, $189,675 and
$319,200 of medium and long-term debt was guaranteed by AT&T, respectively.
9.COMPANY-OBLIGATED PREFERRED SECURITIES OF SUBSIDIARY
In the fourth quarter of 1996, Capita Preferred Trust (the "Trust") issued
$200 million of Trust Originated Preferred Securities (the "Preferred
Securities") to the public (the "Offering"). The Trust invested the proceeds
received from the Offering and its issuance of common securities to the
Company in exchange for Partnership Preferred Securities of its affiliate,
Capita Preferred Funding L.P. (the "Partnership"). The Trust and the
Partnership are consolidated subsidiaries of the Company. The Partnership, in
turn, used proceeds from the issuance of the Partnership Preferred Securities
and a Company capital contribution to invest primarily in 20-year debentures
of the Company and two wholly-owned subsidiaries (the "Debentures"). Payments
in respect to the Debentures issued by the Company's subsidiaries have been
guaranteed, on a subordinated basis, by the Company.
Holders of the 8,000,000 shares of Preferred Securities will be entitled to
receive quarterly cash distributions at an annual rate of 9.06% and a
liquidation amount of $25 per share. Under the terms of the Offering, the
Company issued an irrevocable guarantee, to the extent the Trust has funds
available therefore, on the distributions, redemption and liquidation of the
Preferred Securities. Distribution will be made on the Preferred Securities to
the extent that the Trust had funds available, which is dependent on the
payment of distributions on the Partnership Preferred Securities by the
Partnership to its limited partner, the Trust. Distributions on the
Partnership Preferred Securities will be declared and paid only as determined
in the sole discretion of the Company in its capacity as the general partner
of the Partnership. The Partnership's ability to pay such distributions to the
Trust is dependent on the receipt of interest payments on the Debentures from
the Company and its two subsidiaries.
The table below shows summarized consolidated financial information of the
Company's two subsidiaries, AT&T Capital Leasing Services, Inc. and AT&T
Capital Services Corporation which have issued the Debentures. The summarized
financial information includes transactions with the Company that are
eliminated in consolidation.
AT&T CAPITAL LEASING SERVICES, INC.
<TABLE>
<CAPTION>
AT OR FOR THE YEARS
ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- ---------- --------
<S> <C> <C> <C>
Total revenues.................................... $244,560 $ 197,537 $158,973
Interest expense.................................. 69,490 62,420 35,741
Operating and administrative expenses............. 86,121 85,621 77,607
Provision for credit losses....................... 51,862 39,996 33,942
Income before income taxes........................ 34,509 7,234 9,134
Net income........................................ 20,733 4,241 5,465
Total assets...................................... 628,943 1,387,325
Total debt........................................ 507,180 1,061,640
Total liabilities................................. 597,203 1,214,257
Total shareowner's equity......................... 31,742 173,068
</TABLE>
F-44
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
AT&T CAPITAL SERVICES CORPORATION
<TABLE>
<CAPTION>
AT OR FOR THE YEARS
ENDED DECEMBER 31,
-------------------------
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Total revenues....................................... $111,572 $ 84,732 $70,134
Interest expense..................................... 5,157 4,046 2,864
Operating and administrative expenses................ 46,423 36,108 33,420
Provision for credit losses.......................... 650 107 --
Income before income taxes........................... 10,260 7,724 1,837
Net income........................................... 6,098 4,385 954
Total assets......................................... 161,232 116,952
Total debt........................................... 116,545 72,635
Total liabilities.................................... 145,565 99,031
Total shareowner's equity............................ 15,667 17,921
</TABLE>
The significant decrease in AT&T Capital Leasing Services, Inc. total
assets is due to significant securitization activity. See Note 6 for further
discussion of securitizations.
10.DIVIDENDS
On February 29, 1996, shareowners of record as of February 9, 1996, were
paid a fourth quarter 1995 dividend of $.11 per share. During 1996, the
Company's Board of Directors declared dividends each of $.11 per share to
shareowners of record as of May 10, 1996 and August 9, 1996 payable on May 31,
1996 and August 30, 1996, respectively. As a result of the Merger, the Company
anticipates that it will no longer pay dividends in the short term.
11.FAIR VALUE DISCLOSURES
Fair value is a subjective and imprecise measurement that is based on
assumptions and market data which require significant judgment and may only be
valid at a particular point in time. The use of different market assumptions
or valuation methodologies may have a material effect on the estimated fair
value amounts. Accordingly, management cannot provide assurance that the fair
values presented are indicative of the amounts that the Company could realize
in a current market exchange.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments at December 31, 1996 and 1995:
Cash and Cash Equivalents
The carrying amount is a reasonable estimate of fair value.
Net Investment in Finance Receivables
The fair value of the finance receivable portfolio 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.
Short-term Notes (Commercial Paper and Other Short-term Notes)
The carrying amount is a reasonable estimate of fair value for commercial
paper. Rates currently available to the Company for debt with similar terms
and remaining maturities are used to estimate the fair value of other short-
term notes.
F-45
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Gross Profit Tax Deferral Payable to AT&T
The fair value of the gross profit tax deferral was estimated by
discounting the expected future cash flows using the Company's current cost of
debt. Based on the announcement that AT&T intended to sell its interest in the
Company, this amount for 1995 had been calculated based on the assumption that
the amount would have been repaid by December 31, 1996. On September 30, 1996
the Company repaid the then outstanding balance of $247.4 million to AT&T for
full repayment of such loans (see Note 1).
Medium and Long-term Debt
Rates currently available to the Company for debt with similar terms and
remaining maturities are used to estimate the fair value of existing debt.
Interest Rate and Currency Swap Agreements
The fair value of interest rate and currency swaps is estimated by
discounting the expected future cash flows using an estimated rate at which
the Company could terminate the swaps in the market today.
Foreign Exchange Contracts
The fair value of foreign exchange contracts is estimated based on current
market quotes obtained from dealers for foreign exchange contracts with the
same remaining terms.
Credit Facilities
The fair values of the credit facilities are based on fees currently paid
for similar arrangements.
The following table summarizes the carrying and fair values of on-balance
sheet instruments (as determined using the methods described above):
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents.......... $ -- $ -- $ 3,961 $ 3,961
Net investment in finance receiv-
ables (Note 4).................... 2,135,250 2,140,878 1,800,636 1,844,617
Liabilities:
Short-term notes (Note 8).......... 1,867,247 1,867,247 2,212,351 2,212,403
Gross profit tax deferral payable
to AT&T (Note 12)................. -- -- 248,902 237,845
Medium and long-term debt (Note 8). 4,597,677 4,663,012 4,716,058 4,844,594
</TABLE>
Matching maturities of its portfolio assets and debt is a key component of
the financial strategy used by the Company to manage interest rate risk. Based
on unaudited calculations performed by the Company, the increased fair value
of the Company's debt (including the effects of interest rate and currency
swaps, as shown below) has been offset by the increased fair value of the
Company's portfolio assets at December 31, 1996 and December 31, 1995,
respectively. The fair value of the Company's lease portfolio is not a
required disclosure under SFAS No. 107, "Disclosure About Fair Value of
Financial Instruments" and, therefore, only the fair value of the finance
receivable portfolio has been disclosed.
F-46
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
The following tables summarize the carrying and fair values of off-balance
sheet financial instruments (as determined using methods described above):
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------
CARRYING AMOUNT FAIR VALUE
------------------- -------------------
RECEIVABLE PAYABLE RECEIVABLE PAYABLE
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Interest rate swap agreements........ $ 258 $ (2,662) $14,247 $(26,318)
Currency swap agreement.............. 69 (1,255) 3,407 (14,870)
Foreign currency forward exchange
contracts........................... 7,807 (21,405) (931) (25,654)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------
CARRYING AMOUNT FAIR VALUE
------------------ -------------------
RECEIVABLE PAYABLE RECEIVABLE PAYABLE
---------- ------- ---------- --------
<S> <C> <C> <C> <C>
Interest rate swap agreements......... $ 3,681 $(1,477) $ 2,234 $(53,359)
Currency swap agreements.............. 278 (1,185) 7,066 (8,235)
Foreign currency forward exchange con-
tracts............................... 13,104 (814) (3,036) (2,227)
</TABLE>
Hedging the net cash inflows from foreign denominated assets is a key
component of the financial strategy used by the Company to manage its exposure
to foreign currency fluctuations. Based on unaudited calculations performed by
the Company, the decreased fair value of the Company's forward exchange
contracts is generally offset by an increase in the fair value of the
Company's foreign denominated assets.
The Company has unused revolving credit facilities totalling $1.8 billion
and approximately $26.2 million of unused foreign credit facilities. The fair
value of the credit facilities is based upon fees currently paid for similar
arrangements which are not material (see Note 8).
12.INCOME TAXES
As a result of the Merger, the Company is no longer included in the
consolidated federal and state returns of AT&T and will file a stand-alone
consolidated federal income tax return ("Tax Deconsolidation"). When the
Company was included in AT&T's returns, the Company's income tax expense would
not have differed materially from that reported had the Company filed tax
returns on a stand-alone basis.
In connection with the Merger, Hercules and AT&T made an election under
Section 338(h)(10) of the Internal Revenue Service Code (the "Section
338(h)(10) election") and similar elections under state and local laws. Under
these elections the Merger was deemed to be an asset sale for tax purposes
resulting in the elimination of substantially all deferred tax liabilities as
of the Merger date. In addition, the Company stepped-up its assets and
liabilities to their fair value for tax purposes, which was not done for book
purposes ("push-down accounting") due to the Company's significant level of
public debt outstanding. Such difference between books and taxes, generated a
deferred tax asset, the "Merger-related tax goodwill".
In connection with AT&T's sale of its 86% interest in the Company, AT&T
agreed to pay the Company approximately $280 million for lost tax depreciation
relating to the Section 338(h)(10) election. The Company offset such
receivable from AT&T with amounts owed to AT&T for income taxes due as of the
Merger date. The Company is also entitled to a tax deduction for the cash-out
of the Company's stock options by Hercules. The tax benefit of such payment
reduced the Company's current tax liability by approximately $16.0 million. At
December 31, 1996 and 1995 the Company had a current tax receivable of $6.9
million and current taxes payable of $30.6 million, respectively.
F-47
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
As part of the GPTD Agreement the Company has, in the past, received
interest free loans to the extent of the tax deferrals generated by
transactions between AT&T and the Company. On September 30, 1996 the Company,
pursuant to the GPTD Agreement, made a payment of $247.4 million to AT&T for
full repayment of such loans. The GPTD Agreement required the Company to repay
such loans immediately prior to the Company no longer being a member of AT&T's
consolidated group for federal income tax purposes. These interest free loans
amounted to $248.9 million at December 31, 1995. The average balance
outstanding for such loans was $248.9 million, $245.9 million and
$213.2 million for the nine months ended September 30, 1996 and the years
ending December 31, 1995 and 1994, respectively. Also on September 30, 1996,
pursuant to the Merger Agreement, the Company made a $35.0 million payment to
AT&T in exchange for AT&T assuming all tax liabilities associated with federal
and combined state taxes for periods prior to the consummation of the Merger.
In addition, following Tax Deconsolidation, it is possible that the Company
could be subject to the federal alternative minimum tax. A Company's
alternative minimum tax liability is computed by applying the alternative
minimum tax rate, which is lower than the regular tax rate, to a measure of
taxable income that is broader than that used in computing the regular tax.
Payments of any alternative minimum tax incurred by the Company after a Tax
Deconsolidation would be available in the future as credits against the
Company's regular tax liability.
The provision (benefit) for income taxes consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
----------------------------
1996 1995 1994
--------- ------- --------
<S> <C> <C> <C>
Current:
Federal......................................... $ 289,942 $59,252 $(13,494)
State and local................................. 68,409 13,415 (23,150)
Foreign......................................... 21,384 10,789 3,538
--------- ------- --------
TOTAL CURRENT PORTION............................ 379,735 83,456 (33,106)
--------- ------- --------
Deferred
Federal......................................... (221,720) (5,460) 72,729
State and local................................. (49,878) 205 33,655
Foreign......................................... 1,926 2,483 --
--------- ------- --------
TOTAL DEFERRED PORTION........................... (269,672) (2,772) 106,384
--------- ------- --------
TOTAL PROVISION FOR INCOME TAXES................. $ 110,063 $80,684 $ 73,278
--------- ------- --------
</TABLE>
The Company recorded tax credits of $20,762, $10,850 and $3,446 in 1996,
1995 and 1994, respectively.
F-48
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Deferred income tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------
1996 1995*
-------- ---------
<S> <C> <C>
Gross deferred income tax liabilities:
Lease related differences................................ $ (999) $(692,440)
Securitization-related................................... (54,519) (2)
Pensions................................................. (1,176)
Other.................................................... (5,347) (51,618)
-------- ---------
GROSS DEFERRED INCOME TAX LIABILITIES..................... (62,041) (744,060)
-------- ---------
Gross deferred income tax assets:
Merger-related tax goodwill.............................. 159,604
Allowance for credit losses.............................. 5,644 124,186
Pensions................................................. -- 11,718
State and foreign net operating losses................... 7,205 17,926
Deferred Foreign Tax Credit.............................. 23,237 7,000
Other.................................................... 4,476 32,982
-------- ---------
GROSS DEFERRED INCOME TAX ASSETS.......................... 200,166 193,812
-------- ---------
Valuation allowance....................................... (21,999) (5,048)
-------- ---------
NET DEFERRED INCOME TAX ASSETS (LIABILITIES).............. $116,126 $(555,296)
-------- ---------
</TABLE>
--------
* Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
As a result of the step-up allowed under the Section 338(h)(10) election,
substantially all the deferred tax liabilities arising from lease related
differences were eliminated. In addition, the Merger-related tax goodwill
created a deferred tax asset.
A valuation allowance has been recorded to offset certain deferred tax
assets due to the uncertainty of realizing the benefit of foreign tax credits
and foreign net operating loss carryforwards.
A valuation allowance has not been established for non-foreign deferred tax
assets. Management believes that based upon its consistent history of
profitable operations, coupled with its forecast of taxable income, which
employs certain tax-planning strategies, it is probable that non-foreign
deferred tax assets of approximately $135 million will be realized on future
tax returns, primarily through the generation of future taxable income. The
ultimate realization of the deferred tax assets will require aggregate taxable
income of approximately $320 million to $350 million in future years.
A reconciliation between the federal statutory tax rate and the Company's
effective tax rate is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER
31,
----------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate............................ 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax ef-
fect........................................................ 4.3 4.2 3.9
Tax exempt income............................................ (1.4) (1.6) (1.7)
Goodwill..................................................... 0.3 0.5 1.2
Foreign Taxes................................................ 1.0 1.0 (0.1)
Other........................................................ 0.3 (0.4) 3.9
---- ---- ----
EFFECTIVE TAX RATE........................................... 39.5% 38.7% 42.2%
---- ---- ----
</TABLE>
F-49
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
The Company has no available AMT credit carryforwards at December 31, 1996
to reduce future federal income taxes payable.
For the years ended December 31, 1996, 1995 and 1994, the consolidated
income (loss) before income taxes and cumulative effect of accounting change
by domestic and foreign source was $296,876 and $(18,274), $210,296 and
$(2,057), $177,662 and $(4,048), respectively.
13.PENSION AND BENEFIT PLANS
Pension
Effective January 1, 1994, all employees of the Company and its domestic
subsidiaries were covered by the AT&T Capital Corporation Retirement and
Savings Plan ("RSP"), a qualified defined contribution plan.
Under a defined contribution plan, the amount of future pension benefits is
based solely on the amount contributed and the returns earned on those
amounts. The RSP has a profit sharing component (including a cash or deferred
arrangement) under Section 401(k) of the Internal Revenue Code and a money
purchase component. The Company's annual contribution under the profit sharing
component, which is discretionary above 5%, is expected to equal approximately
9% of employee pay (i.e., aggregate base salaries and annual incentives of
participants in the RSP). In addition, under the money purchase component, the
Company matches an amount equal to 66 2/3% of the first 6% of compensation
that each employee contributes to the RSP under Section 401(k). RSP
participants can select from a variety of funds within the RSP to invest their
allotments. The Company recorded $14,954, $14,367 and $13,525 of pension
expense in 1996, 1995 and 1994, respectively, related to the RSP. In addition,
in 1996, 1995 and 1994 the Company recorded pension expense of $2,649, $2,431
and $1,366, respectively in connection with the RSP-related nonqualified
defined contribution plans. The Company also sponsors various international
plans which are available to certain employees of its international
subsidiaries. The plans are similar to the RSP in that they enable employees
of the Company to contribute a percentage of their salary to provide for post-
retirement income. The Company recorded $1,736, $1,412 and $1,034 of pension
expense in 1996, 1995 and 1994, respectively related to the various
international plans.
At the date of the Merger, as a result of the change in control provisions
in the RSP, all participants became fully vested.
The Company sponsors three unfunded supplemental nonqualified defined
benefit retirement plans that provide certain employees with additional
benefits after retirement. Components of net periodic pension cost for the
years ended December 31, were:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Service cost - benefits earned................................... $ 595 $ 456
Interest cost on projected benefit obligation.................... 608 450
Amortization..................................................... 490 365
Settlement loss*................................................. 455 --
------ ------
NET PERIODIC PENSION COST AFTER SETTLEMENT LOSS.................. $2,148 $1,271
====== ======
</TABLE>
- --------
* In 1996, lump sums were paid to certain participants upon separation of
their service.
F-50
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
The funded status of the plans at December 31 was:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Accumulated benefit obligations:
Vested benefit obligation....................................... $5,926 $1,495
Non-vested benefit obligation................................... 1,104 5,471
------ ------
Total.......................................................... 7,030 6,966
====== ======
Additional benefits on estimated future salary level............. 1,306 1,434
Total projected benefit obligation............................... 8,336 8,400
Plan assets at fair value........................................ -- --
Unfunded projected benefit obligation............................ 8,336 8,400
Unrecognized prior service cost.................................. 4,413 4,845
Unrecognized net loss............................................ 1,413 945
Additional liability............................................. 4,773 4,458
Accrued pension liability recorded............................... 7,283 7,068
====== ======
</TABLE>
At December 31, 1996 and 1995, the projected benefit obligation was
determined using assumed weighted average discount rates of 7.50% and 7.0%
respectively, and assumed long-term rates of increase in future compensation
levels of 4.5% or 5.5% in both years, depending on the plan.
Share Performance Incentive Plan
Prior to the Merger, the Company's Share Performance Incentive Plan, as
amended ("SPIP") was designed to provide the opportunity for cash incentive
awards to key employees at the end of five three-year performance periods. The
first such period terminated on June 30, 1996, with each of the other
performance periods ending on the annual anniversary of such date through and
including June 30, 2000. These incentive awards were generally based on the
performance of the Company's stock price and dividend yield relative to the
interest rate on three-year treasury notes and the total return on the stock
relative to a specified peer group of financial services companies over three
year performance periods. The estimated compensation expense relating to the
SPIP has been charged against income over the respective performance periods.
As a result of the Merger, the SPIP provided an accelerated payout and
additional amounts to certain key employees resulting in a pre-tax charge of
$36.2 million for year ended December 31, 1996. The Company discontinued the
SPIP effective October 1, 1996 (the Merger date).
Leveraged Stock Purchase Plan
Prior to the Merger, under the Company's Leveraged Stock Purchase Plan
("LSPP"), 2,000,000 shares of common stock and options to purchase common
stock were reserved for purchase or grant. The terms and provisions of the
LSPP required certain senior management employees to purchase an aggregate of
851,716 shares of common stock in conjunction with the Company's initial
public offering at the offering price of $21.50 per share ("offering price").
The eligible employees had the option of borrowing from the Company, on a
recourse basis, 88.5% to 97.7% of the purchase price of the shares. The
recourse loans would have matured on August 4, 2000, and had a stated interest
rate of 6.0% compounded on an annual basis. The purchased shares were pledged
as collateral for the recourse loans. Sale of these shares was restricted
prior to August 4, 1996, and was contingent upon repayment of the loan and
certain other requirements. The recourse loans were shown on the balance sheet
as a reduction of equity.
In addition, under the LSPP, the same senior management employees were
granted premium priced stock options which provided participants with an
opportunity to purchase up to 1,095,040 shares of Company stock at
F-51
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
an exercise price equal to 125% of the offering price ($26.875 per share). The
options were exercisable during the period from August 4, 1996 through August
4, 2003. No options were cancelled during 1996. Options cancelled during 1995
and 1994 were 102,852 and 54,895, respectively. Options exercised during 1996
prior to the Merger were 53,352. Pursuant to the terms of the LSPP, no further
purchases of stock, Company loans or option grants were made under the LSPP
subsequent to December 31, 1993.
1993 Long Term Incentive Plan
Prior to the Merger, under the Company's 1993 Long Term Incentive Plan
("1993 LTIP") the Company granted various stock-based and other awards to
employees of the Company. The number of shares available for grant or purchase
under the 1993 LTIP were 3,500,000 (following approval by the Company's
shareowners of an additional 1,500,000 shares on April 19, 1996). Similar to
the LSPP, eligible employees purchasing stock under the 1993 LTIP had the
option of borrowing from the Company, on a recourse basis, 88.5% to 97.7% of
the purchase price of the shares. The recourse loans, which were due seven
years from the loan date, had stated interest rates ranging from 6.0% to 7.92%
compounded on an annual basis. The purchased shares were pledged as collateral
for the recourse loans. Sale of these shares was prohibited for a three-year
period and was contingent upon repayment of the loan and certain other
requirements. The recourse loans were shown on the balance sheet as a
reduction of equity. Awards under the 1993 LTIP were made to executives and
employees of the Company at the Company's discretion.
The following table summarizes the option activity relating to the 1993
LTIP through the Merger date:
<TABLE>
<CAPTION>
SHARES UNDER OPTION NUMBER PRICE PER SHARE
- ------------------- --------- ---------------
<S> <C> <C>
Options outstanding at December 31, 1993............ 686,303 $ 21.50
Changes in 1994:
Options exercised.................................. (274) $ 21.50
Options cancelled.................................. (85,367) $21.50 - 26.15
Options granted.................................... 502,707 $21.81 - 30.63
--------- --------------
Options outstanding at December 31, 1994............ 1,103,369 $21.50 - 30.63
Changes in 1995:
Options exercised.................................. (16,978) $21.50 - 26.15
Options cancelled.................................. (79,605) $21.50 - 26.15
Options granted.................................... 345,036 $21.50 - 47.03
--------- --------------
Options outstanding at December 31, 1995............ 1,351,822 $21.50 - 47.03
Changes in 1996 prior to merger date:
Options exercised.................................. (70,195) $21.50 - 26.15
Options cancelled.................................. (42,937) $21.50 - 38.63
Options granted.................................... 5,206 $38.25 - 38.63
Options outstanding at October 1, 1996 prior to
Merger ............................................ 1,243,896 $21.50 - 47.03
--------- --------------
Options exercisable at December 31, 1996............ -- --
Options exercisable at December 31, 1995............ 59,157 $21.50 - 26.56
========= ==============
</TABLE>
Upon consummation of the October 1, 1996 Merger Agreement, all option
holders received from Hercules $45 in cash for each option. As a result no
compensation cost was incurred by the Company relating to the cashout of these
options.
F-52
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
As part of the same Merger Agreement, most of the senior management
employees who were participants in the LSPP and 1993 LTIP, were given the
opportunity to exchange all of the Company pre-Merger shares, purchased under
the above mentioned plans, for an equal value of the Company's post-Merger
shares, which was on the basis of 4.5 new shares for each of the Company's
pre-Merger shares. Management employees who effected the exchange had their
LSPP or 1993 LTIP recourse loans extended to the year 2006. The new recourse
loans have a stated interest rate of 7.13% compounded on an annual basis. The
exchanged shares are pledged as collateral for the recourse loans. Sale of the
underlying shares is restricted and is contingent upon repayment of the loan
and certain other requirements. The recourse loans are shown on the balance
sheet as a reduction of equity.
In addition, the Company had awarded restricted stock under the 1993 LTIP
to certain employees in consideration of services rendered. During 1996, 1995
and 1994, respectively, restricted stock awards of 7,796, 19,967 and 17,801
shares were made to employees under the LTIP.
As of December 31, 1996, 1995 and 1994 respectively, 0, 405,106 and 735,936
shares were available for issuance under the 1993 LTIP. The shares were not
subject to stock appreciation right features.
Employee Stock Purchase Plan
In April 1994, the Company's shareowners approved an employee stock
purchase plan effective August 1, 1994. The AT&T Capital Corporation 1994
Employee Stock Purchase Plan ("ESPP") enabled employees to purchase shares of
AT&T Capital common stock at a discount. The price per share was 90% of the
fair market value of the common stock at the time of its purchase. No
compensation expenses was recorded in connection with the ESPP. The maximum
aggregate number of shares of common stock that could have been purchased
under the ESPP was 500,000. During 1996, 1995 and 1994, 10,074, 27,965 and
13,484 shares were purchased by employees at prices ranging from $38.88 to
$41.63; $22.05 to $36.00 and $19.02 to $21.83 per share, respectively. As a
result of the Merger agreement, the ESPP was discontinued on June 5, 1996.
1996 Long Term Incentive Plan
Effective on the Merger date, the Company discontinued the LSPP and the
1993 LTIP. A new fixed option plan, the 1996 Long Term Incentive Plan (1996
LTIP) was adopted the same date. Under the 1996 LTIP, certain members of
management who effected an exchange of pre-Merger shares in the Company
received options to purchase new shares of the Company having exercise prices
aggregating $29.25 million. Additional options to purchase the Company's stock
having exercise prices aggregating $9.75 million will also be available for
grant to the same group.
In addition, options to purchase the Company's stock having exercise prices
aggregating $64 million will be available for grant to general members. These
grants will be made annually over a 5 year period. The Board of Directors may
also consider grants over time, commencing after 1997, of options to purchase
the Company's stock with exercise prices aggregating a further $13 million to
junior management. Awards under the 1996 LTIP are made to members of the
Company at the Company's discretion.
All stock options granted under the 1996 LTIP shall be at a price no less
than fair market value on the date of the grant, expire after 10 years and
vest over a five year period.
In October, 1996, 5,062,200 options, with an aggregate value of
approximately $51 million were granted under the 1996 LTIP. A further 50,000
options, with an aggregate value of $0.5 million were granted to Board
members. The grants were made at an exercise price of $10 each, being equal to
the fair market value of the Company's common stock at the date of grant.
Under the plan, options having exercise prices aggregating $52 million were
available for grant to December 31, 1996.
F-53
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Effective January 1, 1996 the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation". This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans. It allows
companies to choose either 1) a fair value method of valuing stock-based
compensation plans which will affect reported net income, or 2) to continue to
follow the existing accounting rules for stock option accounting but disclose
what the impacts would have been had the new standard been adopted. The
Company adopted the disclosure alternative which requires disclosure of the
pro forma net income amount assuming the fair value method was adopted on
January 1, 1995. As a result, the adoption of this standard did not have any
impact on the Company's consolidated financial statements. If the Company had
elected to recognize compensation costs based on the fair value at the date of
grant for awards in 1996 and 1995, in accordance with the provisions of SFAS
123, on a pro forma basis, the Company's net income would have been reduced by
$1.3 million and $0.6 million for 1996 and 1995, respectively.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995,
and additional awards in the future are anticipated.
The weighted average fair values at date of grant for pre-Merger options
granted during 1996 and 1995 were $6.71 and $7.03 per share, respectively. The
minimum value at date of grant for post-Merger options granted in 1996 was
$2.61 per share.
For 1996, as a result of the Merger and the related accelerated vesting of
all prior option grants, the fair value was determined as being the difference
between the grant price and the final cash settlement price of $45 per share
for all option grants made in 1996. For post-Merger option grants, the minimum
value was estimated using the following assumptions: (a) Risk free interest
rate of 6.2% and (b) expected life of 5 years.
For 1995, the fair value was estimated using the Black-Scholes option-
pricing model using the following assumptions: (a) Expected volatility rate of
24.3%, (b) Risk free interest rate of 7.4%, (c) Expected dividend yield of 0%
and (d) Expected life of 3 years.
Severance plans
In 1995, the Company's Compensation Committee and Board of Directors
approved broad-based plans that provide for benefits to members upon certain
terminations of employment. Such benefits are calculated using annual base pay
and annual incentive awards as well as other factors. No accrual for these
benefits have been reflected in the consolidated financial statement because
the amount cannot be reasonably estimated.
14.RELATED-PARTY TRANSACTIONS
Nomura
On October 1, 1996 the Company entered into an Advisory Agreement with an
affiliated company, Nomura International plc (the indirect beneficial owner of
Hercules ("Nomura")). The agreement is for ten years and is subject to a
substantial change in the beneficial ownership of the Company. Under the
agreement Nomura will provide support services to the Company. As part of the
same agreement, the Company incurred a securitization fee of $24 million in
connection with its October 15, 1996 $3.1 billion securitization of lease and
loan receivables (see Note 6). Further, Nomura earned from the Company a $2.0
million fee in connection with its October 25, 1996 issuance to the public of
eight million company-obligated preferred securities of subsidiary. Nomura
also receives a quarterly retainer fee of $0.75 million for certain other
services provided to the Company. Such fees may increase after the first year,
but not in excess of 10% of the previous year's amount.
In connection with the above mentioned $3.1 billion securitization, Nomura
provided an amount equal to 3.5% of the Securitization proceeds as a credit
enhancement.
F-54
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
AT&T/Lucent/NCR
In 1996, rental expense under existing leases with AT&T and affiliates for
the nine months through the Merger date was $3.8 million. Such expenses for
the years ended 1995 and 1994 were $5.5 million and $4.1 million,
respectively.
The Company purchases services from AT&T and affiliates, included data
processing, billing and collection, administration and other services. In
1996, the Company's expenses for such services, for the nine months through
the Merger date were $13.1 million. For the years ended 1995 and 1994, such
expenses amounted to $20.0 million and $20.6 million, respectively.
At December 31, 1995 and 1994, the Company was the lessor to AT&T of
equipment comprising $176.4 million and $268.6 million of capital leases and
$220.5 million and $204.6 million of equipment under operating leases,
respectively. Revenues in 1996 related to these leases through the Merger date
were $67.2 million. For the year ended 1995 and 1994, such revenues were
$105.8 million and $108.8 million, respectively.
The Company also had an interest bearing intercompany debt payable to AT&T
and affiliates of $18.3 million at December 31, 1995 and an interest bearing
intercompany note receivable from AT&T and affiliates of $40.1 million at
December 31, 1994. The net interest income and expense associated with
intercompany borrowing were not material in 1996, 1995 or 1994. Additionally,
the Company had interest free loans related to tax agreements from AT&T as
more fully discussed in Note 12.
The Company is also a party to Operating and License Agreements with AT&T,
pursuant to which AT&T provides the Company with the right to be the preferred
provider of leasing and financing services for AT&T products on a basis
consistent with past practice (Note 1). The Company and AT&T have also entered
into an Intercompany Agreement whereunder, among other things, the Company
manages and administers, for a fee, certain lease portfolios, including the
Lease Finance Assets of Old Capital and Old Credit which were not transferred
to the Company. In 1996, for the nine months through the Merger date, the
Company recognized service fee revenue of $4.8 million for such services. In
1995 and 1994, fee revenue of $7.6 million and $8.6 million, respectively,
were earned for such services.
In the second quarter of 1996, the Company executed an Operating Agreement
with each of Lucent and NCR, and entered into letter agreements with Lucent
and NCR regarding the applicability to Lucent and NCR of specified provisions
of the License Agreement and the Intercompany Agreement between the Company
and AT&T.
The Company has paid a sales assistance fee ("SAF") to Lucent, which fee is
related to the volume of the Company's Lucent-related business. Under the
terms of its Operating Agreement with the Company, Lucent is prohibited from
accepting a SAF from any other provider of leasing services. In early 1996,
after a period of negotiations, the Company agreed to pay a substantial
increase in the SAF for 1995, both as an absolute amount and as a percentage
of volumes attributable to Lucent. After giving effect to the increase, the
SAF paid by the Company to Lucent for 1995 was approximately double the 1994
fee. The Company and Lucent recently agreed to a modified formula for
calculating the SAF for the remaining years of the term of Lucent's Operating
Agreement (retroactive to 1996). The revised formula is expected to result in
aggregate annual SAF which is approximately double the amounts that would have
been paid if the pre-1995 formula had been maintained.
F-55
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
15.COMMITMENTS AND CONTINGENCIES
Derivative Financial Instruments
In the normal course of business, the Company is routinely party to various
derivative financial instruments. These financial instruments are used by the
Company to reduce interest rate and foreign currency exposure, as well as to
meet the financing needs of its customers.
At both December 31, 1996 and 1995, in management's opinion, there was no
significant risk of loss in the event of nonperformance of the counterparties
to derivative contracts. There were no past due amounts, nor were there any
reserves for credit losses on derivatives as of December 31, 1996, 1995 and
1994. Generally, the Company does not require collateral or other security to
support financial instruments with credit risk. The Company has never
experienced a credit related charge-off associated with derivative
transactions.
Information is provided below for each significant derivative product type.
The derivatives, with which the Company is involved, are primarily interest
rate swaps, currency swaps, and foreign currency forward exchange contracts.
Interest Rate and Currency Swaps
The Company enters into interest rate and foreign currency swap agreements
with major money center banks and intermediaries located in major financial
centres to reduce interest rate exposure, to more closely match the maturity
of its debt portfolio to that of its asset portfolio and to reduce its
exposure to currency fluctuations. Interest rate swaps also allow the Company
to raise funds at floating rates and effectively swap them into fixed rates
that are lower than those available to the Company if fixed-rate borrowings
were made directly. Foreign currency swaps are primarily used to hedge
Canadian dollars.
Under interest rate swaps, the Company agrees with other parties to
exchange, at specified intervals, the difference between fixed-rate and
floating-rate interest amounts calculated by reference to an agreed notional
principal amount. Generic swaps' notional amounts generally do not change for
the life of the contract. Amortizing and accreting swaps' notional amounts
generally change based upon a predetermined amortization or accretion
schedule. Currency swaps generally involve the exchange of both principal and
interest payments in distinct currencies.
The notional amounts shown below for interest rate swaps represent an
agreed upon amount on which calculations of amounts to be exchanged are based
and for currency swaps also represent the U.S. equivalent of an amount
exchanged. Notional amounts do not represent the Company's exposure. Rather,
the Company's exposure is limited to the current fair value of the contracts
with a positive fair value at the reporting date (see Note 11). A key
assumption in the information below is that rates remain constant at the
reporting date levels. To the extent that rates change, the variable interest
rate information will change.
F-56
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
Activity in interest rate and currency swaps which are all held for
purposes other than trading for 1996 and 1995, is summarized as follows:
<TABLE>
<CAPTION>
GENERIC AMORTIZING GENERIC CURRENCY
NOTIONAL AMOUNTS PAY FIXED PAY FIXED PAY FLOATING SWAPS TOTAL
- ---------------- ---------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1994....... $1,571,800 $964,973 $175,000 $221,817 $2,933,590
Additions............... 124,339 373,435 240,000 151,631 889,405
Maturities/amortization. (350,000) (406,365) (175,000) (108,455) (1,039,820)
Terminations............ (225,000) (59,400) -- -- (284,400)
---------- -------- -------- -------- ----------
December 31, 1995....... 1,121,139 872,643 240,000 264,993 2,498,775
Additions............... 303,877 370,189 100,000 150,074 924,140
Maturities/amortization. (527,873) (143,364) (240,000) (94,418) (1,005,655)
Terminations............ (119,800) (540,033) -- -- (659,833)
---------- -------- -------- -------- ----------
December 31, 1996....... $ 777,343 $559,435 $100,000 $320,649 $1,757,427
========== ======== ======== ======== ==========
</TABLE>
The schedule of maturities at December 31, 1996 for interest rate and
currency swaps which are all held for purposes other than trading is as
follows:
<TABLE>
<CAPTION>
GENERIC AMORTIZING GENERIC CURRENCY
PAY FIXED PAY FIXED PAY FLOATING SWAPS TOTAL
--------- ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Total notional amounts.. $777,343 $559,435 $100,000 $320,649 $1,757,427
Weighted average pay
rate................... 6.79% 5.99% 5.46% 3.97% 5.95%
Weighted average receive
rate................... 5.73% 4.97% 5.45% 3.06% 4.99%
-------- -------- -------- -------- ----------
1997 Maturities......... $341,354 $217,484 $100,000 $128,334 $ 787,172
Weighted average pay
rate................... 6.03% 6.02% 5.46% 4.89% 5.77%
Weighted average receive
rate................... 5.73% 4.84% 5.45% 3.80% 5.13%
1998 Maturities......... $230,818 $145,285 -- $112,445 $ 488,548
Weighted average pay
rate................... 6.86% 5.74% -- 4.12% 5.90%
Weighted average receive
rate................... 5.72% 4.83% -- 3.13% 4.86%
1999 Maturities......... $201,680 $ 72,898 -- $ 75,536 $ 350,114
Weighted average pay
rate................... 8.00% 5.74% -- 2.04% 6.25%
Weighted average receive
rate................... 5.75% 4.74% -- 1.54% 4.63%
2000 Maturities......... $ 3,491 $ 60,468 -- $ 4,334 $ 68,293
Weighted average pay
rate................... 6.56% 5.95% -- 6.57% 6.02%
Weighted average receive
rate................... 5.59% 5.28% -- 5.75% 5.33%
2001 Maturities......... -- $ 33,186 -- -- $ 33,186
Weighted average pay
rate................... -- 5.92% -- -- 5.92%
Weighted average receive
rate................... -- 5.75% -- -- 5.75%
2002-2017 Maturities.... -- $ 30,114 -- -- $ 30,114
Weighted average pay
rate................... -- 7.75% -- -- 7.75%
Weighted average receive
rate................... -- 5.75% -- -- 5.75%
-------- -------- -------- -------- ----------
</TABLE>
Foreign Currency Forward Exchange Contracts
The Company enters into foreign currency forward exchange contracts to
manage foreign exchange risk (primarily British pounds and Canadian dollars).
The U.S. dollar equivalent of such contracts was $907,283 and $658,808 at
December 31, 1996 and 1995, respectively. The Company enters into these
contracts to hedge the
F-57
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
cash flows associated with foreign currency denominated assets. The term of
these contracts is rarely more than three years. The purpose of the Company's
foreign currency hedging activities is to protect the Company from the risk
that the eventual dollar net cash inflows resulting from these assets will be
adversely affected by changes in exchange rates.
Other Commitments and Contingencies
Certain regional office facilities and equipment of the Company are leased
with renewal options of one to five years. Rental expense (including rental
expense to the Former Affiliates of $4,508) for the years ended December 31,
1996, 1995 and 1994 was $21,247, $22,752 and $18,303, respectively. Rental
expense associated with sublease rentals on operating leases for 1996, 1995
and 1994, was $51, $165 and $115, respectively. Minimum annual rental
commitments at December 31, 1996, under these operating lease agreements are
as follows:
<TABLE>
<S> <C>
1997................................ $ 21,095
1998................................ 20,470
1999................................ 18,779
2000................................ 13,232
2001................................ 9,677
2002 and thereafter................. 21,751
--------
TOTAL............................... $105,004
========
</TABLE>
The total of minimum rentals to be received in the future under
noncancelable subleases related to operating leases as of December 31, 1996,
was $11,802. The total of minimum rentals to be received in the future under
noncancelable subleases related to capital leases (recorded as debt) as of
December 31, 1996, was $117,850.
As part of its lending activities, the Company has entered into
noncancelable commitments to extend credit to some of its customers. As of
December 31, 1996, the Company had approximately $140,213 of such unused
commitments with a remaining term in excess of one year.
In the normal course of business, the Company is subject to certain
lawsuits and other claims. Such matters are subject to many uncertainties and
the outcomes are not predictable with assurance. Consequently, the ultimate
monetary liability or financial impact with respect to these matters at
December 31, 1996 cannot be ascertained. While these matters could impact the
operating results, management believes that after final disposition, any
monetary liability or financial impact to the Company would not be material to
the consolidated financial statements.
16.FOREIGN OPERATIONS
The following data on other geographic areas pertain to operations that are
located outside the U.S. (primarily Europe, Canada, the Asia/Pacific Region
and Central/South America). Net income (loss) includes certain allocated
operating expenses and interest expense. Revenues between geographic areas are
not material. The increase in the net loss relating to foreign operations for
1996 resulted primarily from the allocation of one-time Merger related costs.
F-58
<PAGE>
<PAGE>
AT&T CAPITAL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(In thousands of U.S. dollars)
A summary of the Company's operations by geographic area is presented below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Total Revenues:
United States.............................. $1,683,499 $1,370,672 $1,250,591
Foreign.................................... 268,691 206,363 133,488
---------- ---------- ----------
Total....................................... $1,952,190 $1,577,035 $1,384,079
---------- ---------- ----------
Net Income (Loss):
United States.............................. $ 180,433 $ 130,587 $ 104,558
Foreign.................................... (11,894) (3,032) (4,222)
---------- ---------- ----------
Total....................................... $ 168,539 $ 127,555 $ 100,336
---------- ---------- ----------
<CAPTION>
AT DECEMBER 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Total Assets:
United States.............................. $6,150,074 $7,868,941 $7,148,737
Foreign.................................... 1,942,438 1,672,318 873,186
---------- ---------- ----------
Total....................................... $8,092,512 $9,541,259 $8,021,923
---------- ---------- ----------
</TABLE>
F-59
<PAGE>
<PAGE>
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]
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------
Total Assets 6,183,016 2,213,376
- -----------------------------------------------------------------------
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
- -----------------------------------------------------------------------
Total Liabilities 3,121,523 1,697,442
- -----------------------------------------------------------------------
Shareholders' Equity
Share capital [note 10] 2,935,402 415,160
Retained earnings 126,091 100,774
- -----------------------------------------------------------------------
Total Shareholders' Equity 3,061,493 515,934
- -----------------------------------------------------------------------
Total Liabilities and Shareholders' Equity 6,183,016 2,213,376
- -----------------------------------------------------------------------
See accompanying notes
</TABLE>
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
234,086 119,203
Net finance income [note 9] 84,349 52,386
- -------------------------------------------------------------------------
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
- -------------------------------------------------------------------------
Earnings per common share [note 8]:
Basic $0.52 $0.96
Fully diluted $0.52 $0.96
- -------------------------------------------------------------------------
See accompanying notes
</TABLE>
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
Net change in non-cash assets and liabilities
related to operations (130,332) 26,881
- --------------------------------------------------------------------------------
Cash provided by (used in) operating
activities (22,775) 91,061
- --------------------------------------------------------------------------------
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)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Cash and short term investments, end of year 7,413 51,184
- --------------------------------------------------------------------------------
See accompanying notes
</TABLE>
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
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 21,570,958 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
