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: January 1, 1998 to December 31, 1998 NEWCOURT CREDIT GROUP INC. BCE Place, 181 Bay Street Suite 3500, P.O. Box 827 Toronto, Ontario Canada, M5J 2T3 [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: February 26, 1999 NEWCOURT CREDIT GROUP INC. By: John P. Stevenson Corporate Secretary CONSOLIDATED FINANCIAL STATEMENTS NEWCOURT CREDIT GROUP INC. For the years ended December 31, 1998 and December 31, 1997 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, 1998 and 1997 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, 1998 and 1997 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in Canada. Toronto, Canada Ernst & Young LLP February 22, 1999 Chartered Accountants Newcourt Credit Group Inc. CONSOLIDATED BALANCE SHEETS [in thousands of Canadian dollars] As at December 31 1998 1997 $ $ ASSETS Cash 1,550,221 7,413 Cash held in escrow [Note 11] 0 1,771,000 Finance assets held for investment [Notes 3 and 5] 13,365,986 2,185,568 Equipment under operating lease [Note 4] 3,373,451 275,833 Finance assets held for sale [Note 6] 2,394,488 1,091,398 Investment in affiliated companies 302,437 173,918 Accounts receivable, prepaids and other 482,613 181,736 Property and equipment, net [Note 7] 145,699 87,396 Goodwill [Note 8] 1,896,657 408,754 Future income tax asset [Note 13] 227,292 0 Total Assets 23,738,844 6,183,016 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accounts payable and accrued liabilities 1,039,032 303,968 Debt [Note 10] 18,015,185 2,789,816 Future income tax liability [Note 13] 0 27,739 Total Liabilities 19,054,217 3,121,523 Shareholders' Equity Share capital [Note 11] 4,334,723 2,935,402 Retained earnings 349,904 126,091 Total Shareholders' Equity 4,684,627 3,061,493 Total Liabilities and Shareholders' Equity 23,738,844 6,183,016 See accompanying Notes On behalf of the Board: (Signed) "David F. Banks" (Signed) "Steven K. Hudson" David F. Banks Steven K. Hudson Chairman Chief Executive Officer Newcourt Credit Group Inc. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS [in thousands of Canadian dollars, except for per share amounts] Years ended December 31 1998 1997 $ $ Asset finance income Net finance and rental income 815,787 84,349 Gain on sale of finance assets [Note 6] 452,119 188,837 Management and other fees 230,685 45,249 Total asset finance income 1,498,591 318,435 Operating and administrative 465,747 84,774 Salaries and wages 443,447 94,160 Goodwill amortization, depreciation and other expense [Note 8] 117,304 20,427 Operating income before restructuring charges and taxes 472,093 119,074 Restructuring charges [Note 9] 0 103,000 Operating income before income taxes 472,093 16,074 Provision for (recovery of) income taxes [Note 13] 177,726 (20,347) Net income for the year 294,367 36,421 Retained earnings, beginning of year 126,091 100,774 Dividends paid on common shares (26,001) (10,004) Premium on redemption of preferred securities and other(44,553) (1,100) Retained earnings, end of year 349,904 126,091 Earnings per common share: Basic $2.06 $0.52 Fully diluted $2.06 $0.52 See accompanying Notes Newcourt Credit Group Inc. CONSOLIDATED STATEMENTS OF CASH FLOWS [in thousands of Canadian dollars] Years ended December 31 1998 1997 $ $ OPERATING ACTIVITIES Net income for the year 294,367 36,421 Add (deduct) items not requiring an outlay (inflow) of cash Future income taxes 101,551 (23,516) Goodwill amortization, depreciation and other expense 117,304 20,427 Restructuring charges 0 74,225 Cash flow from operations 513,222 107,557 Net change in non-cash assets and liabilities [Note 20] (171,643) (130,332) Cash provided by (used in) operating activities 341,579 (22,775) INVESTING ACTIVITIES Finance assets, underwritten and purchased (19,888,800) (6,033,608) Finance assets, sold 11,605,676 4,336,050 Finance assets, repayments and others 4,835,614 1,079,027 Finance assets and assets held for sale (3,447,510) (618,531) Business acquisitions (1,645,029) (621,902) Investment in affiliated companies (128,519) 8,821 Purchase of property and equipment (46,633) (35,992) Cash used in investing activities (5,267,691) (1,267,604) FINANCING ACTIVITIES Issuance of debt 120,440,387 5,673,486 Repayment of debt (115,920,409) (4,887,721) Redemption of preferred securities (330,903) 0 Issue of common shares, net 2,272,134 452,535 Future tax on share issue costs 33,712 18,312 Dividends paid on common shares (26,001) (10,004) Cash provided by financing activities 6,468,920 1,246,608 Increase (decrease) in cash during the year 1,542,808 (43,771) Cash, beginning of year 7,413 51,184 Cash, end of year 1,550,221 7,413 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"). Except as indicated in Note 21, 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 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, 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. Gain on sale of finance assets 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. 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 Prior to 1998, assets and liabilities denominated in foreign currencies of certain foreign operations were translated using the temporal method, whereby monetary assets and liabilities were converted into Canadian dollars at exchange rates in effect at the consolidated balance sheet dates. Gains and losses on finance assets and debt were deferred and amortized over the remaining lives of the related items on a straight-line basis. Non-monetary assets and liabilities were translated at historical rates. Revenue and expenses were translated at the exchange rate in effect on the date of the transaction. As a consequence of the acquisition of AT&T Capital Corporation ("AT&T Capital"), 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 these operations are translated into Canadian dollars at rates in effect at the consolidated balance sheet dates. Revenue and expenses are translated at the average exchange rates prevailing during the year. 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. 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: 1998 1997 $ $ Leases 6,207,826 1,116,967 Estimated unguaranteed residual values 946,958 57,421 Unearned income (2,094,662) (190,020) Net leases 5,060,122 984,368 Loans 7,661,725 888,694 Allowance for credit losses (285,104) (38,563) Securitization investments [Note 6] 929,243 351,069 Finance assets held for investment 13,365,986 2,185,568 As at December 31, 1998, the minimum annual payments are as follows: Leases Loans $ $ 1999 2,756,957 1,645,407 2000 1,498,115 1,206,589 2001 971,360 869,506 2002 536,220 779,485 2003 346,190 678,701 Thereafter 98,984 2,482,037 Total 6,207,826 7,661,725 Included in finance assets held for investment is US$6,394,845 [1997 - US$693,758]. 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: 1998 1997 $ $ Original equipment cost: Information technology 2,254,660 364,608 Telecommunications 825,038 0 Transportation 902,771 0 Manufacturing 541,365 0 Healthcare 47,260 0 General equipment and other 449,474 0 5,020,568 364,608 Less: accumulated depreciation (1,735,206) (88,775) Rental receivables, net 88,089 0 Equipment under operating lease 3,373,451 275,833 Minimum annual future rentals to be received on non-cancelable operating leases as at December 31, 1998, are as follows: $ 1999 967,088 2000 693,188 2001 344,681 2002 129,523 2003 55,350 Thereafter 3,140 2,192,970 Included in equipment under operating lease is US$1,765,768 [1997 - US$182,824]. 5. ALLOWANCE FOR CREDIT LOSSES An analysis of the Company's allowance for credit losses is as follows: 1998 1997 $ $ Finance assets held for investment and equipment under operating lease 16,739,437 2,461,401 Allowance for credit losses, beginning of year 38,563 16,465 Provision for credit losses during the year 149,217 2,598 Provision for credit losses from acquisition, net of sales 204,907 28,443 Write-offs, net of recoveries (107,583) (8,943) Allowance for credit losses, end of year 285,104 38,563 Allowance as a percentage of investment assets 1.7% 1.6% Investment assets in arrears (90 days and over) 222,908 13,619 Arrears as a percentage of investment assets 1.3% 0.6% Assets in repossession, at estimated net realizable value 131,212 6,023 6. SECURITIZATIONS The Company has securitization programs under which finance assets originated by the Company are sold to securitization vehicles. These sales are non- recourse to the Company except to the extent of the Company's retained interest in such securitization vehicles. The Company's responsibility is limited to that of servicer which includes the administration and collection of the receivables on behalf of the investors. Under these programs, the Company has securitized finance assets during the year as follows: 1998 1997 $ $ North American term vehicles 6,302,829 2,174,038 North American conduits 3,965,089 1,838,268 Foreign conduits 389,388 0 Total 10,657,306 4,012,306 The Company's term securitizations have senior- subordinate structures which are financed by the issuance of credit tranched securities. These securities have ratings ranging from triple A to single B and are sold to third party institutional investors. The Company's conduit securitizations are also senior-subordinate structures and are financed by the issuance of commercial paper. Securitization investments represent the Company's retained interest in the cash flows of the finance assets sold. Such retained interest includes cash collateral accounts, excess spread assets, securities backed by the transferred assets and servicing fees. Net securitization income which is generally received in cash and the Company's investment in securitization investments are as follows: 1998 1997 $ $ Net securitization income (included in gain on sale of finance assets) 383,758 140,133 Securitization investments: Cash collateral accounts 387,431 22,839 Excess spread assets and securities backed by the transferred assets 541,812 328,230 Total 929,243 351,069 7. PROPERTY AND EQUIPMENT Property and equipment consist of the following: 1998 1997 Accumulated Accumulated Cost depreciation Cost depreciation $ $ $ $ Land and buildings 44,765 25,313 14,654 3,281 Furniture and fixtures 85,472 41,443 48,658 15,143 Computers and office equipment 160,222 82,911 56,552 17,300 Other 6,068 1,161 4,182 926 296,527 150,828 124,046 36,650 Net book value 145,699 87,396 8. GOODWILL AND ACQUISITIONS On January 12, 1998, the Company purchased all of the outstanding common shares of AT&T Capital for approximately US$1.7 billion (Cdn $2.4 billion), of which approximately US$1.15 billion (Cdn $1.6 billion) was paid in cash and the remaining US$550 million (Cdn $790 million) was satisfied through the issuance of approximately 17.6 million common shares of the Company. AT&T Capital is a full-service, diversified equipment leasing and finance company that operates predominantly in the United States. This acquisition has been accounted for as a purchase and accordingly the Company's consolidated financial statements include the results of operations of the acquired business from the date of acquisition. The net assets acquired are as follows: $ Net assets acquired at approximate fair values: Cash 12,346 Finance assets held for investment 9,370,344 Equipment under operating lease 2,287,583 Accounts receivable, prepaids and other 498,933 Future income tax receivable 319,252 12,488,458 Accounts payable and accrued liabilities 876,647 Debt 10,213,136 Preferred securities 286,560 Restructuring accrual 200,176 11,576,519 Net assets acquired 911,939 Consideration: Cash 1,645,029 Common shares 789,997 Total consideration 2,435,026 Goodwill 1,523,087 The Company's amortization period with respect to the acquisition of AT&T Capital is 35 years. The goodwill amortization period was determined by the Company based upon AT&T Capital's superior market presence, relationships with leading manufacturers and the long-term expected future cash flows to be provided by its ongoing operations. During 1997, the Company purchased Commcorp Financial Services Inc., the Business Technology Finance division of Lloyds UDT and other finance operations in the United States. Each of these acquisitions has been accounted for as a purchase and the net assets acquired and the resulting goodwill is as follows: Commcorp BTF Others Total 1997 Acquisitions $ $ $ $ Net assets acquired at approximate fair values: Finance assets held for investment 596,891 421,802 69,298 1,087,991 Investment in affiliated companies 18,471 0 1,960 20,431 Accounts receivable, prepaids and other 32,368 9,854 16,618 58,840 Property and equipment 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 0 60,905 412,025 Future income tax liability 68,911 0 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 0 0 277,295 Total consideration 365,928 493,049 40,220 899,197 Goodwill 247,820 89,744 21,336 358,900 The Company's amortization period with respect to all acquisitions prior to the AT&T Capital acquisition is 20 years. Goodwill amortization 1998 $ AT&T Capital acquisition 41,795 1997 acquisitions 19,585 Pre-1997 acquisitions 4,640 Total 66,020 9. RESTRUCTURING CHARGES In 1997, the Company recorded restructuring charges totaling $103,000, resulting in an after tax charge of $56,650. These charges were related to costs incurred to integrate Commcorp Financial Services Inc. and to rationalize certain of the Company'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. In connection with the acquisition of AT&T Capital, the Company has accrued the estimated costs of integrating the operations of AT&T Capital in order to reduce future costs. Integration costs include amounts for severances, head office closures and relocation, as well as the write-off of redundant application systems. A breakdown of the restructuring accrual and the amounts utilized are as follows: 1998 1997 $ $ Balance, beginning of year 77,262 0 Restructuring charges 0 103,000 Acquired restructuring provision 53,750 0 Restructuring charges accrued on acquisition 146,426 0 Amounts utilized (214,745) (25,738) Balance, end of year 62,693 77,262 10. DEBT Debt consists of the following: 1998 1997 $ $ 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 781,474 292,291 Medium term notes, bearing interest at rates varying from 4.40% to 9.34%, maturing in the years 1999 to 2007 901,760 1,118,433 U.S. medium term notes, bearing interest at rates varying from 5.53% to 8.25%, maturing in the years 1999 to 2028 9,508,769 0 7.625% debenture, maturing in June, 2001 124,858 124,802 6.45% debenture, maturing in June, 2002 149,830 149,782 Collateralized borrowings related to securitized assets, 5.50%, maturing in 2003 190,707 0 Capital lease obligations, discounted at rates varying from 5.70% to 13.50%, maturing in 2004 401,369 0 Other fixed rate debt 525,099 270,227 Floating Rate Debt Floating rate U.S. medium term notes, interest rate ranges from 5.52% to 6.29%, maturing in the years 1999 to 2000 2,095,797 0 Collateralized borrowings relating to securitized assets, based upon one month LIBOR plus 0.125%, maturing in 2001 101,931 0 Floating rate medium term notes, interest periodically reprices based upon CDOR index, maturing in the year 2000 100,000 0 Commercial paper and other short-term borrowings 3,133,591 834,281 Total debt 18,015,185 2,789,816 Interest expense on the debt outstanding during the year was $977,186 [1997 - $145,252], of which $30,975 [1997 - $16,363] has been deducted from management and other fees and the balance of $946,211 [1997 - $128,889] deducted from net finance and rental income. 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 US$2.3 billion with US$1.535 billion having a term of 364 days and US$765 million having a term of five years. In addition, the Canadian bank facility was increased to $1.2 billion with a term of 364 days. The amount of unused Canadian and U.S. bank facilities are $0.3 billion [1997 - $750 million] and US$2.3 billion [1997 - US$500 million], respectively. The Company is required to maintain interest coverage, debt, negative pledge and minimum consolidated tangible net worth covenants in connection with these bank facilities. The Company is in compliance with these and all other covenants as at December 31, 1998. The weighted average interest on commercial paper outstanding at the end of the year is 6.11% for the Canadian commercial paper program [1997 - 5.96%], 6.39% for the U.S. commercial paper program and 5.05% [1997 - nil] for the Australian program. Included in debt is US$9,794,691 [1997 - US$1,388,211] repayable in U.S. dollars, of which US$8,671,451 [1997 - US$1,323,211] was used to fund leases and loans which are repayable in U.S. dollars. The remainder of this debt was used to fund non U.S. dollar denominated assets, with derivative financial instruments used to match fund these assets. During May 1998, the Securities and Exchange Commission declared effective an AT&T Capital debt statement of US$5 billion. As at December 31, 1998, US$1.2 billion was still outstanding. 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 ndebtedness and liquidity facilities of the Company. As at December 31, 1998, scheduled repayments of principal are as follows: Short-term Term Borrowings<fn1> Borrowings<fn2> Total $ $ $ 1999 3,840,503 4,895,381 8,735,884 2000 0 3,328,257 3,328,257 2001 0 1,889,784 1,889,784 2002 0 485,496 485,496 2003 0 775,859 775,859 Thereafter 0 2,799,905 2,799,905 Total 3,840,503 14,174,682 18,015,185 <fn1>	Includes commercial paper, bank facilities and other short-term borrowings. </fn1> <fn2> Includes senior notes, medium term notes and all debentures which were originally issued for a term of one year or greater. </fn2> 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 year: 1998 1997 # $ # $ Subscription rights Outstanding, beginning of year 38,500,000 1,758,493 0 0 Exchange for common shares (38,500,000) (1,758,493) 0 0 Proceeds of rights issue, net 0 0 38,500,000 1,758,493 Outstanding, end of year 0 0 38,500,000 1,758,493 Common shares Outstanding, beginning of year 83,070,958 1,176,909 60,182,688 415,160 Proceeds of share issue, net 0 0 13,910,000 481,030 Shares issued for subscription Rights 38,500,000 1,725,864 0 0 Shares issued for warrants 8,668,446 572,605 0 0 Issued on acquisition [Note 8] 17,633,857 789,997 8,214,843 277,295 Stock options exercised 417,492 3,340 743,172 2,839 Others 21,881 1,396 20,255 585 Outstanding, end of year 148,312,634 4,270,111 83,070,958 1,176,909 Total 148,312,634 4,270,111 121,570,958 2,935,402 Unrealized foreign currency translation adjustment 0 64,612 0 0 Total share capital 148,312,634 4,334,723 121,570,958 2,935,402 Subdivision of 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 of the Company's common shares reserved for issuance. Public Offerings 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. On December 3, 1997, the Company completed a public offering of 38,500,000 subscription rights at $46.00 per right for gross proceeds of $1.77 billion. The proceeds were held in escrow pending the acquisition of AT&T Capital. Expenses of this issue, net of deferred income tax recoveries of $36,929, amounted to $45,136. On January 12, 1998, the subscription rights were exchanged for 38,500,000 common shares at $46.00 per share. On June 4, 1998, all of the special warrants outstanding were exercised without additional payment. 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. On January 12, 1998, the Company completed a private placement of 17,633,857 common shares at US$31.19 per share for proceeds of US$550,000. On May 20, 1998, the Company completed a private placement of 8,668,446 special warrants at US$46.14 per warrant. Each special warrant entitled the holder thereof to acquire one common share of the Company. 12. EMPLOYEE STOCK OPTION PLAN During the year, amendments to the Company's Stock Option Plan were approved by the shareholders at the Annual General Meeting. 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 2,860,100 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, 1998, the following common share options were outstanding: Number of Shares Per Share $ Expiry Date Options granted to: Directors 30,000 7.25 February 23, 2001 22,000 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 415,510 12.00 January 29, 2001 328,875 24.25 February 6, 2007 2,054,998 26.00 May 2, 2007 50,000 49.50 August 16, 2004 16,000 49.50 September 16, 2007 21,350 47.20 October 30, 2007 640,400 49.05 January 8, 2008 863,050 56.80 February 4, 2008 18,000 68.50 April 29, 2008 1,300,000 31.75 October 6, 2008 Total 5,810,183 Of the above, stock options for 467,510 common shares are exercisable as at December 31, 1998. The remaining stock options for 5,342,673 common shares are exercisable as follows: Exercisable Date Number of Shares 1999 634,807 2000 1,335,670 2001 1,335,670 2002 1,335,665 2003 700,861 Total 5,342,673 13. 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 rate with the actual income tax expense: 1998 1997 $ $ Income before income taxes 472,093 16,074 Statutory rate of income taxes 45% 45% Income taxes at the statutory rate 212,442 7,233 Effect on income taxes of: Deductible dividends (4,264) (11,705) Foreign losses, no tax benefit booked 3,538 0 Foreign tax rate differential (63,782) (18,679) Goodwill amortization 25,767 2,614 Large corporations tax 4,568 2,164 Other (543) (1,974) Provision for (recovery of) income taxes 177,726 (20,347) Allocation of provision (recovery): Current 76,175 3,169 Future 101,551 (23,516) Provision for (recovery of) income taxes 177,726 (20,347) (b)	The tax effect of temporary differences that give rise to significant portions of the future income tax asset and liability are presented below: 1998 1997 $ $ Future income tax asset: Net operating loss carryforward 201,779 110,172 Goodwill 218,290 0 Alternative minimum tax 20,147 0 Other 14,548 68,938 Gross future income tax asset 454,764 179,110 Less: Valuation allowance (5,807) 0 Gross future income tax asset net of valuation allowance 448,957 179,110 Future income tax liability: Differences in tax and accounting basis of finance assets (76,853) (118,819) Securitization related (122,925) (58,806) Other (21,887) (29,224) Gross future income tax liability (221,665) (206,849) Total future income tax asset (liability) 227,292 (27,739) By region: Canada (12,309) 3,981 United States 242,195 (31,720) Other foreign countries (2,594) 0 Total future income tax asset (liability) 227,292 (27,739) The Company has $459,080 of non-capital losses available for tax purposes to offset future taxable income arising from the reversal of deferred income tax liabilities. These non-capital tax losses arise principally from timing differences relating to depreciation and restructuring charges as well as certain other permanent differences. Non-capital losses pertaining to the Canadian operations of $360,975 will expire at various dates by the year 2005. Net operating losses pertaining to the U.S. operations of $98,105 will expire at various dates by the year 2013. (c) 	The income (loss) before income taxes and provision for (recovery of) ]income taxes are as follows: 1998 1997 $ $ Income (loss) before income taxes: Canada 121,026 (47,023) United States 266,269 37,057 Other foreign countries 84,798 26,040 472,093 16,074 Provision for current income taxes: Canada 4,774 1,338 United States 60,830 758 Other foreign countries 10,571 1,073 76,175 3,169 Provision for (recovery of) future income taxes: Canada 45,367 (38,605) United States 51,468 13,694 Other foreign countries 4,716 1,395 101,551 (23,516) Total provision for (recovery of) income taxes: Current 76,175 3,169 Future 101,551 (23,516) 177,726 (20,347) Net income (loss): Canada 70,885 (9,756) United States 153,971 22,605 Other foreign countries 69,511 23,572 294,367 36,421 14. 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 Notes 2 and 6. Syndicated finance assets are assets which have been sold to investors without recourse or credit enhancement. Finance assets under management are as follows: 1998 1997 $ $ Securitized finance assets 13,969,670 5,626,856 Syndicated finance assets 2,167,050 1,386,706 Syndicated finance assets of affiliated companies 646,073 616,052 Total 16,782,793 7,629,614 15. SEGMENT REPORTING The Company operates in the following two segments of the finance market: commercial finance (Newcourt Financial) and corporate finance (Newcourt Capital). Newcourt Financial provides asset-based sales and inventory financing in the commercial finance market. Newcourt Capital provides structured financing on capital assets and related advisory services to corporate and institutional borrowers. The Company does not allocate to the segments operating and administrative costs associated with managing the capital structure and loan origination activities of the Newcourt Financial and Newcourt Capital segments. Newcourt Newcourt Financial Capital Total $ $ $ 1998 Net finance and rental income 724,941 90,846 815,787 Gain on sale of finance assets 383,758 68,361 452,119 Management and other fees 208,621 22,064 230,685 Total asset finance income 1,317,320 181,271 1,498,591 Goodwill amortization and depreciation expense 8,281 1,888 10,169 Segment income 716,288 147,646 863,934 Finance assets held for investment 12,163,172 1,202,814 13,365,986 Equipment under operating lease 3,373,451 0 3,373,451 1997 Net finance and rental income 70,193 14,156 84,349 Gain on sale of finance assets 140,133 48,704 188,837 Management and other fees 36,252 8,997 45,249 Total asset finance income 246,578 71,857 318,435 Goodwill amortization and depreciation expense 9,587 226 9,813 Segment income 121,588 61,999 183,587 Finance assets held for investment 1,784,337 401,231 2,185,568 Equipment under operating lease 275,833 0 275,833 A reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements is as follows: 1998 1997 $ $ Total segment income 863,934 183,587 Less unallocated amounts: Corporate and administrative expenses 391,841 167,513 Operating income before taxes 472,093 16,074 The following provides additional information of the Company's operations by geographic region. United Other States Canada Countries Total $ $ $ $ 1998 Net finance and rental income 606,607 53,484 155,696 815,787 Gain on sale of finance assets 319,805 128,300 4,014 452,119 Management and other fees 160,798 37,590 32,297 230,685 Total asset finance income 1,087,210 219,374 192,007 1,498,591 Finance assets held for investment 9,227,220 1,569,936 2,568,830 13,365,986 Equipment under operating lease 2,733,763 208,443 431,245 3,373,451 1997 Net finance and rental income 27,468 43,794 13,087 84,349 Gain on sale of finance assets 87,302 86,326 15,209 188,837 Management and other fees 20,926 14,771 9,552 45,249 Total asset finance income 135,696 144,891 37,848 318,435 Finance assets held for investment 586,502 978,755 620,311 2,185,568 Equipment under operating lease 262,184 13,649 0 275,833 16. LEASE COMMITMENTS Future minimum annual payments on a cash basis under leases for premises over the next five years and thereafter are as follows: $ 1999 44,859 2000 34,074 2001 23,395 2002 19,131 2003 8,061 Thereafter 51,534 Total 181,054 Rent expense amounted to $54,564 in 1998 [1997 - $9,632]. 17. 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: Current credit Notional principal amounts maturing <fn1> exposure <fn2> Total Under 1 to 5 Over Dec 31, Dec 31, 1 year years 5 years 1998 1998 $ $ $ $ $ As at December 31, 1998 Interest rate contracts Forwards 426,541 0 0 426,541 603 Swaps 3,013,225 2,893,659 1,180,198 7,087,082 39,257 3,439,766 2,893,659 1,180,198 7,513,623 39,860 Foreign exchange contracts Forwards 747,316 702,249 2,810 1,452,375 83,964 Swaps 948,218 1,844 185,018 1,135,080 24,244 1,695,534 704,093 187,828 2,587,455 108,208 Total derivatives 5,135,300 3,597,752 1,368,026 10,101,078 148,068 <fn1> Notional principal amounts are the contract amounts used in determining payments. </fn1> <fn2> Credit risk exposure represents the amount owed to the Company under such contracts. All counterparties are investment grade financial institutions. In addition, the fair market value of derivative financial instruments is a net payable of approximately $234 million [1997 - $56 million]. </fn2> Current credit Notional principal amounts maturing <fn1> exposure <fn2> Total Under 1 to 5 Over Dec 31, Dec 31, 1 year years 5 years 1997 1997 $ $ $ $ $ As at December 31, 1997 Interest rate contracts Forwards 986,062 0 0 986,062 0 Swaps 235,717 762,284 247,574 1,245,575 11,327 1,221,779 762,284 247,574 2,231,637 11,327 Foreign exchange contracts Forwards 1,811,703 0 0 1,811,703 0 Swaps 637,469 620,897 76,970 1,335,336 3,458 2,449,172 620,897 76,970 3,147,039 3,458 Total derivatives 3,670,951 1,383,181 324,544 5,378,676 14,785 <fn1> Notional principal amounts are the contract amounts used in determining payments. </fn1> <fn2> Credit risk exposure represents the amount owed to the Company under such contracts. All counterparties are investment grade financial institutions. In addition, the fair market value of derivative financial instruments is a net payable of approximately $234 million [1997 - $56 million]. </fn2> 18. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of assets and liabilities at December 31 is as follows: 1998 1997 $ $ Carrying Estimated Carrying Estimated Value Fair Value Value Fair Value Assets Finance assets held for investment 13,365,986 13,626,101 2,185,568 2,189,143 Finance assets held for sale 2,394,488 2,394,488 1,091,398 1,091,398 Investment in affiliated companies 302,437 299,716 173,918 174,918 Liabilities Debt 18,015,185 18,199,342 2,789,816 2,799,179 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. 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. 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. 19. SENSITIVITY TO INTEREST AND CURRENCY EXCHANGE RATES The Company monitors its asset/liability position using techniques including market value, sensitivity analysis and a value at risk model. Value at risk measures the effect of interest rate movements upon the market value of equity. The value at risk tests discussed below for exposure to interest rate and currency rate exposures are based on a variance/co-variance model using a three-month horizon and a 95% confidence level. The model assumes that financial returns are normally distributed. The value at risk model takes into account correlations and diversification across market factors, including currencies and interest rates. Estimates of volatility and correlations of market factors are drawn from the RiskMetrics dataset as of December 31, 1998. RiskMetrics is a leading portfolio modeling system for evaluating risk. RiskMetrics uses market risk estimation methodology that was developed with market risk experience, accompanied by volatility and correlation datasets covering the major financial markets. Based on the Company's overall interest rate exposure at December 31, 1998, including derivatives and other interest rate sensitive instruments, a near-term change in interest rates, within a 95% confidence level based on historical interest rate movements, would not materially affect on a fair values basis, the consolidated financial position, results of operations or cash flows of the Company. Based on the Company's overall currency rate exposure at December 31, 1998, including derivatives and other foreign currency sensitive instruments, a near-term change in currency rates, within a 95% confidence level based on historical currency rate movements, would not materially affect on a fair value basis the consolidated financial position, results of operations or cash flows of the Company. There were no past due amounts or reserves for credit losses at December 31, 1998, related to derivative transactions. 20. CONSOLIDATED STATEMENTS OF CASH FLOWS AND OTHER REPORTING DETAILS 1998 1997 $ $ Decrease (increase) in accounts receivable, Prepaids and other 195,346 (101,297) Decrease in accounts payable and accrued Liabilities (366,989) (29,035) Total (171,643) (130,332) Cash interest paid 845,629 147,038 Cash taxes paid 58,967 6,671 21.	 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] Under Canadian GAAP, the Company records its retained interest in its securitization transactions at fair value at the time of sale. Under U.S. GAAP, retained interests are recorded initially at the Company's carrying value. Certain of the Company's retained interests are considered available for sale securities and accordingly are marked to market with the change in market value being recorded as a component of comprehensive income. In addition, certain securitization transactions are recorded as gains under U.S. GAAP when the assets are legally isolated, whereas under Canadian GAAP such gains are recorded upon the transfer of risks and rewards of ownership, and substantial completion of the transaction. [ii] For Canadian GAAP purposes, certain costs relating to the restructuring of AT&T Capital's operations are netted against the restructuring accrual. For U.S. GAAP purposes, such amounts are expensed in income immediately. During 1997, the restructuring charge was reduced for costs that would have been accrued as an adjustment to the liabilities assumed through the purchase of Commcorp Financial Services Inc. and the rationalization of certain of the Company's businesses in Canada and the United States under U.S. GAAP, rather than expensed as permitted by Canadian GAAP. Certain of these expenses were recorded for U.S. GAAP purposes as incurred in 1998. [iii] 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. [iv] Prior to 1998, the Company used the temporal method in translating assets and liabilities denominated in foreign currencies whereby unrealized translation gains and losses on long- term monetary items were deferred and amortized. For U.S. GAAP purposes, deferred unrealized translation gains and losses were recorded in income. As a consequence of the AT&T Capital acquisition in 1998, the Company's foreign operations are now considered self-sustaining and the current rate translation method is used whereby unrealized translation gains and losses are included in shareholders' equity in accordance with Canadian and U.S. GAAP. The following table presents the amounts that would have been reported for U.S. GAAP purposes in 1998 and 1997: 1998 1997 $ $ Net income for the year - Canadian GAAP 294,367 36,421 Adjustments: Securitization transactions (net of income taxes of $10,462 [1997 - $4,364]) (14,623) 5,486 Restructuring charge (net of income taxes of $28,890 [1997 - 15,600]) (38,017) 19,067 Options retired 0 (1,100) Foreign exchange losses (net of income taxes of nil [1997 - $6,180]) 0 (7,553) Other (net of income taxes of $2,413 [1997 - nil] ) (7,378) 0 Net income for the year - U.S. GAAP 234,349 52,321 Other comprehensive income: Unrealized gain on available for sale securities (net of income taxes of $7,660 [1997- nil] ) 11,455 0 Unrealized foreign currency translation adjustment (net of income taxes of $29,075 [1997 - nil] ) 35,537 0 Comprehensive income - U.S. GAAP 281,341 52,321 Retained earnings, beginning of year 128,283 85,966 Dividends paid on common shares (26,001) (10,004) Premium on redemption of preferred securities (44,343) 0 Retained earnings, end of year 339,280 128,283 Share capital 4,334,723 2,935,402 Shareholders' equity 4,674,003 3,063,685 The following sets forth the computation of basic and diluted earnings per share : 1998 1997 $ $ Numerator Net income for the year - U.S. GAAP 234,349 52,321 Less: Premium on redemption of preferred securities (44,343) 0 Income available for the common shareholders - U.S. GAAP 190,006 52,321 Denominator Denominator for basic earnings per common share: Weighted average number of shares 142,741,776 70,219,175 Effect of dilutive securities: Employee stock options 2,117,291 1,171,555 Denominator for diluted earnings per common share: Adjusted weighted average number of common shares and assumed conversions 144,859,067 71,390,730 Basic earnings per common share $1.33 $0.75 Diluted earnings per common share $1.31 $0.73 (b) 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 under Canadian GAAP. Under Canadian GAAP, amounts paid to employees to retire issued stock options without issuing common shares are recorded as capital transactions. Under APB No. 25, such amounts paid are recorded as compensation expense. 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: 1998 1997 $ $ Pro-forma net income available to common shareholders per U.S. GAAP 189,541 51,917 Pro-forma earnings per common share: - Basic earnings per common share $1.33 $0.74 - Fully diluted earnings per common share $1.30 $0.74 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 1998: dividend yield of 0.35% [1997 - 0.58%], expected volatility of 40% [1997 - 30%], risk free interest rate of 5.0%, [1997 - 6.3%] and expected lives of eight years [1997 - eight years]. 1998 1997 Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price # $ # $ Outstanding, beginning of year 3,441,100 21.96 1,687,726 8.63 Granted 2,860,100 43.74 2,557,298 26.00 Exercised (417,492) 8.55 (802,640) 6.83 Forfeited (73,525) 43.74 (1,284) 23.02 Outstanding, end of year 5,810,183 33.63 3,441,100 21.96 Options exercisable at year end 467,510 698,413 Weighted average fair value of options granted during the year $22.10 $12.02 (c) Impending Accounting Changes: In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 1999. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Company expects to adopt the new Statement effective January 1, 2000. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of Statement 133 will be on the earnings and financial position of the Company. In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98- 5 "Reporting on the Costs of Start-Up Activities". This Statement of Position is required to be adopted in years beginning after December 15, 1998. The Company expects to adopt the new Statement effective January 1, 1999. This new Statement of Position requires costs of start-up activities to be expensed as incurred. Upon adoption, the Company is expected to record a pre-tax charge of approximately $23 million to income as a cumulative effect related to this change in accounting principle. 22. 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. Year ended December 31, 1998 $ Total asset finance income 862,722 Operating expenses 611,714 Operating income before taxes 251,008 Net income for the period 144,802 December 31, 1998 $ ASSETS Cash 1,569,780 Finance assets held for investment 7,387,186 Equipment under operating lease 2,429,581 Finance assets held for sale 274,793 Receivables from affiliates and other assets 5,084,846 Total Assets 16,746,186 LIABILITIES AND SHAREHOLDER'S EQUITY Liabilities Debt 14,404,220 Accrued liabilities 903,495 Total Liabilities 15,307,715 Total Shareholder's Equity 1,438,471 Total Liabilities and Shareholder's Equity 16,746,186 Included in total asset finance income is $99.7 million of interest income related to intercompany receivables due from certain subsidiaries of the Company. Included in receivables from affiliates and other assets is $4.4 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. 23. 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. 24. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 1998 consolidated financial statements.