-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ITaRzf+9glt8H600DP0uGvDMTjPJz2HYSxAN50FjNiR7/WVTEYMERVwEfmHlgSAQ j5zOYRGA86NTGCrSL4I5qg== 0001037603-99-000039.txt : 19991115 0001037603-99-000039.hdr.sgml : 19991115 ACCESSION NUMBER: 0001037603-99-000039 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEWCOURT CREDIT GROUP INC CENTRAL INDEX KEY: 0001037603 STANDARD INDUSTRIAL CLASSIFICATION: LOAN BROKERS [6163] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: SEC FILE NUMBER: 001-14604 FILM NUMBER: 99750296 BUSINESS ADDRESS: STREET 1: STE 3500 BCE PLACE STREET 2: 181 BAY ST P.O.BOX 827 CITY: TORONTO ONTARIO STATE: A6 BUSINESS PHONE: 4165942400 MAIL ADDRESS: STREET 1: 181 BAY STREET SUITE 3500 STREET 2: PO BOX 827 CITY: TORONTO ONTARIO 6-K 1 THIRD QUARTER FINANCIAL STATEMENTS FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of a Foreign Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the month(s) of: September 30,1999 NEWCOURT CREDIT GROUP INC. Newcourt Centre, 207 Queens Quay West Suite 700 Toronto, Ontario Canada, M5J 1A7 [Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.] Form 20-F / / Form 40-F /X/ [Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.] Yes / / No /X/ [If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b)] 82- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: November 12, 1999 NEWCOURT CREDIT GROUP INC. /__________________________/ By: Scott J. Moore Executive Vice President, Legal and General Counsel and Secretary CONSOLIDATED FINANCIAL STATEMENTS NEWCOURT CREDIT GROUP INC. (Unaudited) For the nine months ended September 30, 1999
Newcourt Credit Group Inc. CONSOLIDATED BALANCE SHEETS (Unaudited) [in thousands of United States dollars] September 30, December 31, 1999 1998 $ $ ASSETS Cash 47,614 998,807 Finance assets held for investment [Notes 3 and 5] 9,717,536 8,611,705 Equipment under operating lease [Notes 4 and 5] 2,225,688 2,173,514 Finance assets held for sale 1,976,528 1,542,769 Investment in affiliated companies 322,259 194,860 Accounts receivable, prepaids and other 398,623 310,948 Property and equipment, net [Note 6] 124,875 93,874 Goodwill [Note 7] 1,253,978 1,280,036 Future income tax asset 224,149 146,444 Total Assets 16,291,250 15,352,957 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable and accrued liabilities 524,456 727,468 Debt [Note 8] 12,631,581 11,607,184 Total Liabilities 13,156,037 12,334,652 Shareholders' Equity Share capital [Note 11] 2,789,395 2,792,861 Retained earnings 345,818 225,444 Total Shareholders' Equity 3,135,213 3,018,305 Total Liabilities and Shareholders' Equity 16,291,250 15,352,957 See accompanying Notes
Newcourt Credit Group Inc. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (Unaudited) [in thousands of United States dollars, except for per share amounts] Nine Months Ended September 30, September 30, 1999 1998 $ $ Asset finance income Net finance and rental income 341,620 383,502 Securitization gains 128,360 163,003 Syndication fees 91,050 27,771 Management fees and other income [Notes 9 and 10] 212,353 102,322 Total asset finance income 773,383 676,598 Salaries and wages 271,150 209,494 Operating and administrative 222,147 209,271 Depreciation and goodwill amortization [Note 7] 55,498 59,893 Operating income before income taxes 224,588 197,940 Provision for income taxes 86,134 75,101 Net income for the period 138,454 122,839 Retained earnings, beginning of period 225,444 81,240 Premium on redemption of preferred securities - (28,570) Dividends paid on common shares (18,080) (11,018) Other - (227) Retained earnings, end of period 345,818 164,264 Earnings per common share: Basic $0.93 $0.87 Fully diluted $0.93 $0.87 See accompanying Notes
Newcourt Credit Group Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) [in thousands of United States dollars] Nine Months Ended September 30, September 30, 1999 1998 $ $ OPERATING ACTIVITIES Net income for the period 138,454 122,839 Adjustments for: Gain on sale of business units (34,276) - Future income taxes (73,967) 18,786 Goodwill amortization, depreciation and other expense 55,498 59,892 Cash flow from operations 85,709 201,517 Net change in non-cash assets and Liabilities (218,397) (14,434) Cash provided by (used in) operating Activities (132,688) 187,083 INVESTING ACTIVITIES Finance assets, underwritten and Purchased (12,478,768) (9,297,109) Finance assets, sold 7,248,948 4,617,551 Finance assets, repayments and others 3,198,341 2,841,794 Finance assets and assets held for sale (2,031,479) (1,837,764) Business dispositions (acquisitions) 339,829 (1,059,892) Investment in affiliated companies (128,141) (100,411) Purchase of property and equipment (53,059) (20,097) Cash used in investing activities (1,872,850) (3,018,164) FINANCING ACTIVITIES Issuance of debt 43,434,244 46,310,099 Repayment of debt (42,365,462) (44,554,301) Redemption of preferred securities - (213,201) Issue of common shares, net 3,643 1,468,701 Future tax on share issue costs - 21,720 Dividends paid on common shares (18,080) (11,018) Cash provided by financing activities 1,054,345 3,022,000 Increase (decrease) in cash during the Period (951,193) 190,919 Cash, beginning of period 998,807 4,776 Cash, end of period 47,614 195,695 See accompanying Notes
1. NATURE OF THE COMPANY'S OPERATIONS Newcourt Credit Group Inc. (the "Company") is an independent, non-bank financial services enterprise with operations primarily in the United States, Canada and Europe. The Company also has supporting operations in Latin America and Asia. The Company originates, invests in and sells asset-based financings including secured loans, leases and conditional sales contracts. For asset-based financings sold to institutional investors the Company generally continues to manage these financings on behalf of the investors for a fee. The Company's origination activities focus on the commercial and corporate finance segments of the asset-based financing market. The Company originates leases and loans in the commercial finance market predominantly through vendor finance programs. These agreements are established with select equipment manufacturers, dealers and distributors to provide equipment sales and inventory financing. The Company also serves the corporate finance market through financing services it delivers to major corporations, public sector institutions and governments. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada, consistently applied ("Canadian GAAP"). Effective January 1, 1999, the Company adopted the United States dollar as its reporting currency to reflect the increased significance of the U.S. currency in its operations following the acquisition of AT&T Capital Corporation in 1998. Through a translation of convenience, comparative amounts were restated from Canadian to U.S. dollars using an exchange rate of $0.6443, the rate prevailing at December 31, 1998. The more significant accounting policies are summarized below: Principles of consolidation The consolidated financial statements of the Company include the accounts of all its wholly-owned subsidiaries. All material intercompany transactions and balances have been eliminated. The Company accounts for its investment in foreign and domestic affiliates in which it has significant influence using the equity method. Finance assets held for investment Net investment in finance assets is comprised of loans, capital lease receivables and retained interest in receivables securitized net of an allowance for credit losses. Income is recognized on finance assets held for investment on an actuarial basis which produces a constant rate of return on the investment in finance assets. Recognition of finance income is generally suspended when, in management's view, a loss is likely to occur but in no event later than 90 days after an account has gone into arrears. Accrual is resumed when the receivable becomes contractually current and management believes there is no longer any significant probability of loss. Allowance for credit losses Repossessed assets are specifically reserved for at their estimated net realizable value based on estimated collateral values and recoveries under third party guarantees and vendor support agreements. Management also routinely assesses the portfolio on an item-by-item basis and establishes specific allowances for those accounts considered doubtful. General allowances are established for probable losses on loans which cannot be determined on an item-by-item basis. This provision is established by applying historical loss trends to various segments of the portfolio according to external and internal credit ratings. Securitization gains The Company sells certain of its asset-based finance assets to securitization vehicles. Securitization transactions are accounted for as sales of finance assets. These sales are non-recourse to the Company except to the extent of the Company's retained interest in these securitization vehicles. These transactions result in the removal of the assets from the Company's consolidated balance sheets, the recording of assets received and a gain on sale when the significant risks and rewards of ownership are transferred to the purchaser. The assets received are generally cash and a retained interest in the cash flows of the receivables sold. Such retained interest (or securitization investments) is recorded at estimated fair value and may include cash collateral accounts, excess spread assets, and securities backed by the transferred assets. Proceeds on sale are computed as the aggregate of the initial cash consideration and the present value of any additional sale proceeds, net of a provision for anticipated credit losses on the securitized assets and the amount of an arm's length servicing fee. Income is earned on the securitization investments on an accrual basis. The carrying value of this asset is reduced, as required, based on changes in the Company's share of the estimated credit losses and the effects of changes in the payment rate on the securitized assets. The Company continues to manage the securitized assets and recognizes income equal to an arm's length servicing fee over the term of the securitized assets. Syndication fees Certain finance assets are underwritten and sold to institutional investors for cash. These transactions generate syndication fees for the Company. The Company generally continues to service these assets on behalf of the investors for a fee. Fees received for syndicating finance assets are included in income when the related transaction is substantially complete provided the yield on any portion of the assets retained by the Company is at least equal to the average yield earned by the other participants involved. Equipment under operating lease Equipment under operating lease is generally depreciated over the estimated useful life of the asset. Depreciation is generally calculated on a straight-line basis over the term of the lease to the estimated unguaranteed residual value at the end of the lease term. Rental revenue is recognized on a straight-line basis over the related lease term. Estimated unguaranteed residual values Estimated unguaranteed residual values are established upon acquisition and leasing of the equipment based upon the estimated value of the equipment at the end of the lease term. Values are determined on the basis of studies prepared by the Company, historical experience and industry data. Although it is reasonably possible that a change in the unguaranteed residual values could occur in the near term, the Company actively manages its residual values by communicating with lessees and vendors during the lease term to encourage lessees to extend their leases or upgrade and enhance their leased equipment. Residual values are continually reviewed and monitored by the Company. Declines in residual values for capital leases are recognized as an immediate charge to income. Declines in residual values for operating leases are recognized as adjustments to depreciation expense over the shorter of the useful life of the asset or the remaining term of the lease. Deferred costs Direct incremental costs of acquisition of finance assets and operating leases are deferred and amortized over the shorter of the term of the finance asset or operating lease and the expected period of future benefit. As finance assets are securitized, the unamortized portion of the acquisition costs related to the assets being securitized is expensed. Costs incurred during the pre-operating period of new business ventures are deferred and amortized over the expected period of future benefit. Property and equipment Property and equipment are recorded at cost less accumulated depreciation. Depreciation is provided on a straight-line basis at the following rates: Buildings 20 years Furniture and fixtures 10 years Computers and office equipment 5 years Goodwill Goodwill is recorded at cost less accumulated amortization. The Company's amortization periods for goodwill range from 20 to 35 years. The valuation and amortization of goodwill is evaluated on an ongoing basis and, if considered permanently impaired, goodwill is written down. The determination as to whether there has been an impairment in value is made by comparing the carrying value of the goodwill to the projected undiscounted net revenue stream to be generated by the related activity. Foreign currency translation The Company's foreign operations function financially and operationally independent of the parent and therefore are considered, for the purposes of foreign currency translation, to be self- sustaining operations. As a result, the assets and liabilities of the Canadian and non-United States foreign operations are translated into United States dollars at rates in effect at the consolidated balance sheet dates. Revenue and expenses are translated at the average exchange rates prevailing during the period. Unrealized foreign exchange currency translation gains and losses on these self- sustaining operations are included in share capital. Income taxes The Company accounts for income taxes using the liability method of income tax allocation. Earnings per common share Basic earnings per common share is computed based on the weighted average number of common shares outstanding during the year. Fully diluted earnings per common share has been computed based on the weighted average number of common shares outstanding after giving effect to the exercise of all outstanding dilutive options to acquire common shares and any other dilutive items. Derivative financial instruments The Company uses derivative financial instruments in conjunction with its interest rate and currency risk management strategies. Derivative financial instruments are used to hedge exposure to interest rate and foreign exchange rate risk arising during the normal course of business. Contract and notional amounts associated with derivative financial instruments are not recorded as assets or liabilities on the consolidated balance sheets. The most frequently used derivative financial instruments are various types of interest rate swaps and foreign exchange contracts. Currency swaps and bond forwards are also used. Swaps and forward contracts are accounted for on the accrual basis when cash flows of the derivatives are matched to a specific on- balance sheet position. Net accrued interest receivable/payable and deferred losses/gains are recorded in accounts receivable, prepaids and others or accounts payable and accrued liabilities, as appropriate. Realized losses/gains on terminated contracts are deferred and amortized over the remaining life of any applicable corresponding position. Foreign exchange contracts are used to hedge the Company's net investment in certain of its self sustaining operations. Gains and losses on these foreign exchange contracts are credited or charged to the cumulative translation adjustment account. When a derivative financial instrument is no longer designated as a hedge, any gain or loss on the contract is recognized in income immediately. Use of estimates The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Significant areas in which estimates are used include residual values, income taxes, retained interests in securitized assets and related reserves, allowance for credit losses, valuation of finance assets held for sale, restructuring reserves and contingencies.
3. FINANCE ASSETS HELD FOR INVESTMENT Finance assets held for investment consist of: September 30, December 31, 1999 1998 $ $ Leases 4,180,109 3,963,620 Estimated unguaranteed residual values 1,020,009 883,194 Unearned Income (942,150) (954,496) Net leases 4,257,968 3,892,318 Loans 4,874,540 4,304,369 Allowance for credit losses (203,035) (183,693) Securitization investments 788,063 598,711 Finance assets held for investment 9,717,536 8,611,705 Substantially all of the finance assets held for investment bear interest at varying levels of fixed rates of interest. The loans included in finance assets held for investment are collateralized. 4. EQUIPMENT UNDER OPERATING LEASE Equipment under operating lease consists of: September 30, December 31, 1999 1998 $ $ Original equipment cost: Information technology 1,477,499 1,452,677 Telecommunications 667,757 531,572 Transportation 371,285 581,655 Manufacturing 430,315 348,801 Healthcare 41,591 30,450 General equipment and other 507,953 289,596 3,496,400 3,234,751 Less: accumulated depreciation (1,314,670) (1,117,993) Rental receivables, net 43,958 56,756 Equipment under operating lease 2,225,688 2,173,514
5. ALLOWANCE FOR CREDIT LOSSES An analysis of the Company's allowance for credit losses is as follows: September 30, December 31, 1999 1998 $ $ Finance assets held for investment and equipment under operating lease 11,943,224 10,785,219 Allowance for credit losses, beginning of period 183,693 24,846 Provision for credit losses during the period 93,886 96,141 Provision for credit losses from acquisition, net of sales - 132,022 Write-offs, net of recoveries (74,544) (69,316) Allowance for credit losses, end of period 203,035 183,693 Allowance as a percentage of investment assets 1.7% 1.7% Investment assets in arrears (90 days and over) 201,320 143,620 Arrears as a percentage of investment assets 1.7% 1.3% Assets in repossession, at estimated net realizable Value 161,105 84,540 6. PROPERTY AND EQUIPMENT Property and equipment consist of the following: September 30, 1999 December 31, 1998 Accumulated Accumulated Cost depreciation Cost depreciation $ $ $ $ Land and buildings 37,306 16,889 28,842 16,309 Furniture and fixtures 62,723 27,605 55,070 26,702 Computers and office Equipment 121,040 54,800 103,231 53,420 Other 4,017 917 3,910 748 225,086 100,211 191,053 97,179 Net book value 124,875 93,874
7. GOODWILL Goodwill amortization during the period was $34,771 (1998 - $47,475) 8. DEBT Debt consists of the following: September 30, December 31, 1999 1998 $ $ Fixed Rate Debt U.S. senior notes, bearing interest at rates varying from 6.84% to 8.26%, maturing in the years 2000 to 2005 1,499,297 503,504 Medium term notes, bearing interest at rates varying from 5.10% to 9.34%, maturing in the years 1999 to 2007 540,683 581,004 U.S. medium term notes, bearing interest at rates varying from 5.61% to 8.25%, maturing in the years 1999 to 2028 6,529,552 6,126,500 7.625% debenture, maturing in June, 2001 85,082 80,446 6.45% debenture, maturing in June, 2002 102,089 96,535 Collateralized borrowings related to securitized assets, 5.50%, maturing in 2003 97,484 122,873 Collateralized borrowings related to securitized assets, 6.99%, maturing in 2005 64,170 - Capital lease obligations, discounted at rates varying from 5.70% to 13.50%, maturing in the years 1999 to 2004 212,688 258,602 Other fixed rate debt 311,889 338,321 Floating Rate Debt Floating rate U.S. medium term notes, interest rate ranges from 5.17% to 6.75%, maturing in the years 1999 to 2002 990,250 1,350,322 Collateralized borrowings relating to securitized assets, based upon one month LIBOR plus 0.125%, maturing in 2001 38,292 65,674 Floating rate medium term notes, interest periodically reprices based upon CDOR index, maturing in the year 2000 68,120 64,430 Commercial paper and other short-term Borrowings 2,091,985 2,018,973 Total debt 12,631,581 11,607,184 Interest expense on the debt outstanding during the period was $616,506 [1998 - $457,281].
The Company renegotiated its various bank facilities in April 1998 to support the existing commercial paper programs and for general corporate purposes. The U.S. bank facility was increased to $2.3 billion with $1.535 billion having a term of 364 days and $765 million having a term of five years. In addition, the Canadian bank facility was increased to Cdn. $1.2 billion with a term of 364 days. The amount of unused Canadian and U.S. bank facilities are Cdn. $1.0 billion [1998 - Cdn. $0.3 billion] and $2.3 billion [1998 - $2.3 billion], respectively. In April 1999, the Company renewed its various bank facilities to support the existing commercial paper programs and for general corporate purposes. The terms and conditions remained unchanged with the exception of the Canadian facility, which was renewed at Cdn. $1.0 billion with a term of 364 days. The weighted average interest on commercial paper outstanding as at September 30, 1999 is 4.92% [1998 - 5.44%] for the Canadian commercial paper program, 5.92% [1998 - 5.90%] for the U.S. commercial paper program and 5.21% [1998 - nil] for the Australian program. In connection with the purchase of AT&T Capital, the Company unconditionally guarantees the debt and liquidity facilities of AT&T Capital as to payment of principal and interest, when and as this debt shall become due and payable, whether at maturity or otherwise. Also, AT&T Capital entered into an agreement whereby it guarantees certain indebtedness and liquidity facilities of the Company. 9. OTHER INCOME During the first quarter, the Company recorded a pre-tax gain of $56,582 (after-tax gain of $31,120) resulting from the extinguishment of certain derivative financial instruments. During 1998, the Company had derivative financial instruments in place to hedge the Company's net investment in certain of its foreign self-sustaining operations to Canadian dollars (the "1998 Derivatives"), its reporting currency in 1998. Effective January 1, 1999, the Company adopted the United States dollar as its reporting currency. Accordingly, on that date, the Company determined that all non-U.S. dollar functional self- sustaining operations would be hedged to the U.S. currency and that the 1998 Derivatives would be terminated. The 1998 Derivatives were unwound over several weeks in early 1999 to minimize the Company's liability or maximize its receivables from counterparties without exposing the Company to undue risk. Since the 1998 Derivatives were no longer designated as hedges during 1999, any gains or losses must be immediately recognized in earnings. 10. SALE OF AUTOMOTIVE LEASING UNITS During the second quarter the Company disposed of two automotive leasing units, based in Canada and the United Kingdom. Under the terms of the sales, the total consideration was $339,829 cash. Total assets sold were $337,493 and total liabilities sold were $31,940 resulting in a gain of $34,276 ($15,451 after tax). 11. SHARE CAPITAL Authorized - The Company's authorized share capital consists of the following: [i] Unlimited common shares with voting rights; [ii] Unlimited special shares without voting rights convertible into common shares on a share-for-share basis; and [iii] Unlimited Class A preference shares issuable in series.
Outstanding - The following is a summary of the changes in share capital during the period: September 30, December 31, 1999 1998 # $ # $ Subscription rights Outstanding, beginning of period - - 38,500,000 1,132,997 Exchange for common shares - - (38,500,000) (1,132,997) Outstanding, end of period - - - - Common shares Outstanding, beginning of Period 148,312,634 2,751,233 83,070,958 758,282 Shares issued for subscription rights - - 38,500,000 1,111,974 Shares issued for warrants - - 8,668,446 368,929 Issued on acquisition - - 17,633,857 508,995 Stock options exercised 112,762 1,078 417,492 2,152 Others 82,933 2,565 21,881 901 Outstanding, end of Period 148,508,329 2,754,876 148,312,634 2,751,233 Total 148,508,329 2,754,876 148,312,634 2,751,233 Unrealized foreign currency translation adjustment - 34,519 - 41,628 Total share capital 148,508,329 2,789,395 148,312,634 2,792,861
Public Offerings On January 12, 1998, the subscription rights were exchanged for 38,500,000 common shares at Cdn. $46.00 per share. On June 4, 1998, all of the special warrants outstanding were exercised without additional payment. Treasury Issue On January 12, 1998, the Company completed a private placement of 17,633,857 common shares at $31.19 per share for proceeds of $550,000. On May 20, 1998, the Company completed a private placement of 8,668,446 special warrants at $46.14 per warrant. Each special warrant entitled the holder thereof to acquire one common share of the Company. 12. FINANCE ASSETS UNDER MANAGEMENT Included in finance assets under management are finance assets which have been securitized or syndicated by the Company and are not reflected on the consolidated balance sheets. Securitized finance assets are described in Note 2. Syndicated finance assets are assets which have been sold to investors without recourse or credit enhancement.
Finance assets under management are as follows: September 30, December 31, 1999 1998 $ $ Securitized finance assets 8,559,918 9,000,658 Syndicated finance assets 1,744,540 1,396,230 Syndicated finance assets of affiliated Companies 411,720 416,265 Total 10,716,178 10,813,153
13. SUMMARIZED FINANCIAL INFORMATION OF AT&T CAPITAL CORPORATION The table below shows summarized consolidated financial information for AT&T Capital, an indirect wholly-owned subsidiary of the Company. The Company has guaranteed ("Guarantee") on a full and unconditional basis the existing registered debt securities and certain other indebtedness of AT&T Capital. The Company has not disclosed financial statements or other information regarding AT&T Capital on a stand-alone basis since management does not believe that it is material to debt holders due to the Guarantee. The following summarized consolidated financial information for AT&T Capital has been prepared in accordance with accounting principles generally accepted in Canada. Nine months ended September 30, 1999 September 30, 1998 $ $ Total asset finance income 330,464 413,097 Operating expenses 259,574 335,548 Operating income before taxes 70,890 77,549 Net income for the period 43,952 42,858 September 30, 1999 December 31, 1998 $ $ ASSETS Cash 127,847 1,011,409 Finance assets held for investment 3,961,790 4,759,564 Equipment under operating lease 1,650,313 1,565,379 Finance assets held for sale 214,313 177,049 Receivables from affiliates and other assets 4,943,894 3,276,167 Total Assets 10,898,157 10,789,568 LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Debt 9,809,564 9,280,639 Accrued liabilities 128,134 582,122 Total Liabilities 9,937,698 9,862,761 Total Shareholder's Equity 960,459 926,807 Total Liabilities and Shareholder's Equity 10,898,157 10,789,568
Included in the first nine months of 1999 total asset finance income is $126.7 million (1998 - $33.2 million) of interest income related to intercompany receivables due from certain subsidiaries of the Company. Total asset finance income decreased in the first nine months of 1999 compared to the same period in 1998 due mainly to the sale of various portions of the international businesses of AT&T Capital to the Company at their approximate book value. The assets relating to these businesses approximated $1,178.4 million. Increased securitization volume in the second half of 1998 also contributed to the decrease in finance revenue. Included in receivables from affiliates and other assets is $4.5 billion as at September 30, 1999 (1998 - $2.9 billion) of intercompany receivables due from certain subsidiaries of the Company. The purchase price the Company paid for AT&T Capital has not been "pushed down" to AT&T Capital's stand-alone financial statements; however, these statements reflect the adoption of the accounting policies and procedures of the Company. 14. MERGER WITH THE CIT GROUP INC. On March 8, 1999, the Company announced that it would be acquired by The CIT Group Inc. ("CIT") through an exchange of common stock. Under the terms of the transaction each outstanding share of the Company's common stock will be exchanged for 0.92 shares of CIT. Under an amended and restated agreement and plan of reorganization dated August 5, 1999, the Company and CIT reached agreement that the Company's common stock would be exchanged for 0.70 shares of CIT as well as the elimination of certain closing conditions. The transaction is expected to close during the fourth quarter of 1999, and is conditional upon regulatory and shareholder approval. CIT is headquartered in Livingston, New Jersey, USA. CIT is a leading diversified finance organization offering secured commercial and consumer financing primarily in the United States. 15. YEAR 2000 ISSUE The Year 2000 Issue arises because many computerized systems use two digits rather than four to identify a year. Date-sensitive systems may recognize the Year 2000 as 1900 or some other date, resulting in errors when information using Year 2000 dates is processed. In addition, similar problems may arise in some systems which use certain dates in 1999 to represent something other than a date. The effects of the Year 2000 Issue may be experienced before, on, or after January 1, 2000 and, if not addressed, the impact on operations and financial reporting may range from minor errors to significant systems failure which could affect an entity's ability to conduct normal business operations. It is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company, including those related to the efforts of customers, suppliers, or other third parties, will be fully resolved. 16. FOREIGN EXCHANGE RATES The following Canadian to U.S. dollars exchange rates were used during the period: December 31, 1998 0.6443 September 30, 1999 0.6812 Average for the first nine months of 1999 0.6712 17. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 1999 consolidated financial statements. -----END PRIVACY-ENHANCED MESSAGE-----