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E X P E R I E N C E A N D E X P E R T I S E .
S T A Y I N G T H E C O U R S E .
A N N U A L R E P O R T 2 0 0 3
H I S T O R I C A L M I L E S T O N E SY E A R S O F FA C T O R I N G
S T A Y I N G T H E C O U R S E
Accord Business Credit Inc. commences operations in Montrealand Toronto after raising$2,000,000 in capital.
The first full year of operationssees factoring volume reach $92 million.
A modest profit is achieved. Arights issue brings more capitalinto the Company to financegrowth.
1980
The Company continues to growdespite soaring interest rates.
1982Volume hits $192 million and theCompany earns $477,000. It wouldbe the first of 22 consecutive yearsof black ink. J.T.A. Factoring, Inc., a predecessor of Accord Financial,Inc., celebrates its 5th anniversary.
1981
The Company makes its firstacquisition, Kerlen Factors Ltd.
1984
The Canadian factoring businessof Heller Financial is acquired inmid-year.
1986
Shareholders’ equity tops $4.1 million. All long-term debt is retired.
1985
Volume tops $612 million. Bankdebt, incurred in the Helleracquisition, is completely repaid.The Company initiates quarterlydividend payments.
The Company celebrates 10 yearsin business as earnings reach anew peak of $1.6 million.
1988
The economy softens, and creditand loan losses rise. Internationalfactoring volume accounts for 18%of Accord’s total. The Canada-U.S.Free Trade Agreement spurs cross-border trade.
The Company acquires U.F.Financial Services Inc.; MontcapFinancial Corp. is founded by Fred Moss.
1989
New records are set in volume,revenue and earnings.Shareholders’ equity climbs to$8.6 million.
Accord goes public and beginstrading at $1.95 per share. TheCompany acquires majority controlof Accord Financial, Inc. and 100%of Montcap Financial Corp.
Factoring volume reaches an all-time peak of $1.1 billion. Recordwrite-offs of almost $4 milliondepress earnings.
Earnings jump to $2.6 million (26 cents per diluted share). The quarterly dividend is 1.5 cents.Shareholders’ equity rises to $15 million.
Modest growth and negligiblewrite-offs result in record earnings(41 cents per diluted share). Returnon average shareholders’ equity is26.1%. The quarterly dividend israised to 2 cents.
Accord acquires the balance ofAccord Financial, Inc. The Companyalso acquires Skyview InternationalFinance Corp. which specializes inimport finance.
Earnings rise for the 4th straightyear, to $4.5 million (46 cents per diluted share). The quarterlydividend is raised to 2.5 cents.
The Company celebrates its 20thanniversary with record earnings of$4.8 million (49 cents per dilutedshare). Shareholders’ equity is$27.8 million. The Companyacquires the factoring portfolio ofRichards Capital Corp., Dallas, TX.The year ends with offices andrepresentatives in 6 states and 4 provinces.
Earnings climb again, to $6.2 million (64 cents per diluted share). The quarterly dividend is raised to 3.5 cents.An alliance is forged withExport Development Canada to promote export factoring.
Earnings reach a peak of $7.4 million (76 cents per dilutedshare) on record revenue of $31 million. Montcap celebratesits 10th anniversary.
Record write-offs of $6 millioncause earnings to fall to $2.9 million(30 cents per diluted share). Tom Henderson is promoted toC.E.O. of ailing Accord Financial, Inc.
2002Earnings rebound to $4.6 million(49 cents per diluted share).
The Company celebrates its25th anniversary as volume hits a new high of $1.4 billion.Earnings climb to $5.8 million(61 cents per diluted share). The quarterly dividend is raised to 4.5 cents.
1978
1979 19871991
Accord prepares to join the largestinternational factoring network,Factors Chain International.
1983
Historical Milestones inside front cover
Corporate Profile inside front cover
Highlights of 2003 inside front cover
Financial Highlights 1Letter to the Shareholders 2What Happened to Your $10,000? 4Employee Profiles 5Management’s Roundtable Discussion 6
Case Study One 7Case Study Two 9Five Key Benchmarks 11Case Study Three 11Management’s Discussion and Analysis 12Ten Year Financial Summary 26Board of Directors 27Corporate Governance 28
Management’s Report to the Shareholders 30Auditors’ Report to the Shareholders 30Consolidated Balance Sheets 31Consolidated Statements of Earnings 32Consolidated Statements of Retained Earnings 32Consolidated Statements of Cash Flows 33Notes to Consolidated Financial Statements 34Corporate Information 41
T A B L E O F
C O N T E N T S
1990
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2003
C O R P O R AT E P R O F I L E Accord Financial Corp., through its subsidiaries, offers superior factoring
services to small and medium-sized companies, providing the capital these
firms need to grow and succeed. Accord’s services include lending, financing,
credit investigation, guarantees, receivables collection, and record-keeping.
Incorporated in 1978, the
company operates as an
"old-line" factor specializing
in credit protection and
collection services. Offices and
representatives are located in
Toronto and Montreal. Major
industries served are textiles,
apparel and footwear. Clients
are mostly Canadian and U.S.
companies; approximately
one-quarter of total business
is international in nature.
Export Ease™ is a turn-key
service that gives Canadian
exporters all-inclusive
receivables insurance,
reporting and management.
The service is offered in
partnership with Export
Development Canada, and
takes advantage of Accord’s
global network to provide
effective, professional,
receivables management.
FactorsCananda™ is a
network organized to provide
the professional expertise
and financial resources
asset-based financial services
companies need to better
serve their local markets.
Montcap provides back-office
infrastructure, financing and
credit advice for members,
which currently total
twenty-five.
Started as a predecessor
company in 1977 and acquired
by Accord in 1992, Accord
Financial, Inc. specializes in
factoring services by purchasing
receivables for cash from
small and medium-sized U.S.
companies. Major clients are
temporary staffing agencies,
wholesale distributors, telecom
providers, furniture and
electronics manufacturers, food
service providers, textiles, and
other commercial enterprises.
Its head office is located in
Greenville, SC, with branch
offices in Dallas, TX, Charlotte,
NC, and St. Petersburg, FL.
FactorsUSA™ was created to
assist smaller U.S. factoring
companies in expanding
their factoring markets.
Accord Financial, Inc. provides
financial support and other
services to its members.
Formed in 1990 and acquired
by Accord in 1992, Montcap
Financial Corp. offers factoring
services through the purchase
of receivables, as well as
asset-based lending and
purchase order financing. All
clients are in Canada. A wide
variety of industries are served
including automotive, printing,
sporting goods, food
distribution, industrial products,
apparel and textiles. Factoring
for small and medium-sized
businesses is the fastest
growing area in financial
services. Montcap has offices
in Montreal and Toronto.
H I G H L I G H T S O F 2 0 0 3
50
40
30
20
10
0'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
44.8
15.0
21.724.7
27.8
18.1
31.6
39.242.6
45.6
SHAREHOLDERS’ EQUITY(in millions of dollars at December 31)
E X P E R I E N C E A N D E X P E R T I S E .S T A Y I N G T H E C O U R S E .
This year Accord celebrated 25 years of business
success. While business is competitive, and varies
year-over-year, we have stayed the course.
Accord has charted new waters by opening
markets and developing products and services.
Our acquisitions have added to our breadth and
depth giving inroads into new regions.
Effective business planning and the efficient
deployment of our resources steered us clear of
many pitfalls that have befallen our competitors.
Investors who have stayed the course with us have
reaped the rewards.
Throughout these pages you will find our key
milestones and profiles of our key management and
company subsidiaries. In addition, the President’s
Letter to the Shareholders, Management’s Roundtable
and case studies will give you further insight into
Accord’s experience and expertise.
Keeping business liquid is our primary goal.
Shareholders’ equity declined by$828,000 in 2003 as a result of a $5,666,000 decrease in thecumulative translation adjustmentcomponent of shareholders’ equity.
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
30
25
20
15
10
5
0
26.1
19.420.3
18.7
21.221.5 21.1
7.0
10.6
13.2
RETURN ON EQUITY(as a percent per annum on average shareholders’ equity)
Accord’s 10 year average is 17.9%.After a poor 2001, this percentage has improved steadily since. We lookforward to achieving a consistentreturn of over 15% per annum.
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
30
25
20
15
10
5
0
19.718.6
19.7 20.3
26.1
20.3
31.0
28.226.2 26.2
REVENUE(in millions of dollars)
Revenue in 2003 at $26,214,000was similar to 2002 despite the adverse impact of the declinein the U.S. dollar against theCanadian dollar in 2003.
8
7
6
5
4
3
2
1
0'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
4.21
2.63
4.52 4.77
6.18
4.25
7.43
2.92
4.65
5.84
NET EARNINGS(in millions of dollars)
Net earnings increased by a strong26% in 2003 to $5,839,000.
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F I N A N C I A L H I G H L I G H T S
2003 2002 2001
Operating Datafor the years ended December 31 (in thousands of dollars except where indicated)
Factoring volume (in billions) $ 1.439 $ 1.366 $ 1.253
Gross revenue 26,214 26,235 28,197
Net earnings 5,839 4,649 2,919
Return on average shareholders’ equity 13.2% 10.6% 7.0%
Balance Sheet Dataat December 31 (in thousands of dollars)
Total assets $ 74,699 $ 71,255 $ 67,327
Shareholders’ equity 44,800 45,628 42,609
Common Stock Data (per share)
Net earnings - basic $ 0.61 $ 0.49 $ 0.31
- diluted 0.61 0.49 0.30
Dividends paid 0.16 0.14 0.14
Share price - high 7.55 5.85 6.65
- low 4.95 4.80 4.56
- close at December 31 7.05 5.05 5.10
Book value at December 31 4.64 4.80 4.48
2
“In 2003 we charted a course to return to the profitability of previous years.
We remained focused on this direction and are close to reaching our goals.” — Ken Hitzig
Our game plan for 2003 was to continue
the climb back to previous profit levels
that we achieved prior to 2001. There was
a significant improvement in earnings
despite difficult business conditions in the
U.S. market.
Net earnings for 2003 were $5,839,000 or
61 cents per diluted share. This was 26%
higher than earnings the prior year, and
double the earnings of 2001. Our results
for 2003 were after a pre-tax provision of
$712,000 to cover the final cost of settlement
of a long-standing legal battle in Florida.
A pre-tax provision had been made in 2002
of $2,339,000. While management was
convinced of the righteousness of our
cause, it was far more prudent from a
business perspective to settle out of court.
Consolidated results for the Company were
very gratifying. Factoring volume for 2003
was $1.44 billion, a record high for us.
Volume was $1.37 billion the prior year
and $1.25 billion in 2001. Because of
declining yields and the fall in the U.S.
dollar, total revenue was almost unchanged
from the prior year; $26,214,000 in 2003
compared to $26,235,000 in 2002. Total
expenses, excluding the provision for
settlement of claim, were about the same in
both years. The settlement provision, which
was $2,339,000 in 2002, was $712,000 in
2003. As a result, our net earnings were
up 26% to $5,839,000.
The Canadian economy was very robust in
2003. Our operations in Canada generated
revenue of $19,907,000 compared to
$18,893,000 in 2002. Net earnings in
Canada were $4,865,000 versus $4,674,000
the prior year.
The U.S. economy was a real challenge for
us in 2003. Conditions were stagnant in
the first half of the year, but a recovery
began in the third quarter, which reached
buoyant conditions by the fourth quarter.
Our U.S. operation, Accord Financial, Inc.,
which had been reorganized from top to
bottom in 2002, was ready to capitalize on
the rebounding economy. Volume and
revenue, in U.S. dollars, rose in 2003.
However, the sharp decline in the U.S.
L E T T E R T O T H E S H A R E H O L D E R S
S T A Y I N G T H E C O U R S E
Ken HitzigPresidentAccord Financial Corp.
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dollar against the Canadian dollar caused
the Canadian dollar equivalent of our U.S.
revenue to fall. Revenue, in Canadian
dollars, was $6,640,000 in 2003 compared
to $7,411,000 in 2002. There was a huge
improvement in net earnings; a loss of
$25,000 in 2002 was turned around into a
profit of $974,000 in 2003.
Our return on average shareholders’ equity
was 13.2% in 2003 versus 10.6% in 2002.
Our target is 15% per annum or better.
Book value per share at Dec. 31, 2003 was
$4.64 compared to $4.80 a year earlier.
The fall in the value of the U.S. dollar
against the Canadian dollar had a major
impact on the equity of the Company.
Referring to the balance sheets, you will
note that the "cumulative translation
adjustment" component of shareholders’
equity has gone from a positive number of
$4,332,000 at Dec. 31, 2002 to a negative
number of $1,334,000 at Dec. 31, 2003.
This decrease of $5,666,000 caused a fall
in Accord’s book value per share of close
to 60 cents. Accord’s quarterly dividend
was raised to 4.5 cents per share effective
with the September dividend. The rate had
been 3.5 cents per share since September,
1999. Options on 136,000 shares were
exercised in 2003 for proceeds of $529,000.
The number of shares outstanding at
year-end was 9,649,571. A normal course
issuer bid commenced on Dec. 2, 2002
and expired one year later without any
shares having been acquired.
At Dec. 31, 2003 total factored receivables
and loans (owned receivables) amounted
to $71 million. In addition, we had
outstanding receivables of $124 million
(managed receivables) for which we had
underwritten most of the risks in the event
of customer default. The total "at risk"
portfolio at Dec. 31, 2003 was $195 million;
a year earlier the total was $201 million.
L O O K I N G F O R W A R D
As we head into 2004, the Canadian and
U.S. economies appear to be performing
well. The U.S. economy, coming off two
years of weak performance, brightened
considerably in the second half of 2003.
Incoming deal flow at all three of our
4
operating units is at a healthy level.
Our initiatives regarding export factoring
(Export Ease) and re-discounting for small
factors through our association with
Liquid Capital are bearing fruit. In February,
2004, we agreed to offer an export factoring
program to the customers of a major
Canadian bank which will no longer offer
this service directly. On an annual basis,
this could add almost 4% to our gross
revenue. These areas of activity, which
accounted for less than 10% of our volume
in 2003, are growing rapidly and should
account for 10-15% in 2004. Our U.S.
operation, Accord Financial, Inc., which
ended 2003 on a strong note, is poised to
record a good year in 2004.
We’ve set ourselves a challenge here at
Accord: Match our record high earnings
of $7.4 million set in 2000, but don’t
stop there.
My sincere thanks to our associates,
directors and shareholders for all your
support and encouragement.
Ken Hitzig
President
Toronto, Ontario
March 24, 2004
W H A T H A P P E N E D T O
Y O U R $ 1 0 , 0 0 0 ?It began in 1978, the year Accord opened for business. Small office. Small (but experienced) staff.Big ambition – to be the best factoring and financialservices company in the country. You had faith in us. Liked our vision. Trusted our experienceand integrity, had confidence in our energy anddedication. So you bought $10,000 worth of Accordcommon stock along with $10,000 in medium-termnotes. And you had the good sense to settle backand stay with us for the long ride.
A year later times got tough. Interest rates wentthrough the roof. But we didn’t budge an inch fromour goal. We paid interest on your notes right onthe dot. Even redeemed those notes in full wellbefore maturity.
What about your $10,000 investment in sharesmeanwhile? In 1992 your shares were split 6.4 forone, and you found yourself holding 64,000 sharesof a new publicly-traded company – AccordFinancial Corp.
And all the way along, you were receiving quarterlydividends on your stock. By Dec. 31, 2003, you’dreceived dividends totalling $86,240.
Accord Financial’s shares closed Dec. 31, 2003 at$7.05. That brought the value of your holdings to $451,200.
So what happened to your $10,000? Well, take alook: Your $10,000 has turned into $537,440 whenyou figure it all out. That’s equal to a 17.3% yearlyrate of return.
Thanks for sticking with us.
Ken Hitzig
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Mark celebrated his 25th year as a member ofAccord in 2003. He grew up in Philadelphia, PAand Pompano Beach, FL. In 1971 he graduatedfrom Wharton School, University of Pennsylvania,with a degree of Bachelor of Science in Economics,majoring in finance.
In 1973 he joined Aetna Factors in Montreal and,by 1976 had been promoted to Account Executivein the company’s Toronto office.
He moved to Accord Business Credit in its foundingyear of 1978 and rose from Toronto BranchManager to President in 1995.
Mark is a member of the Executive Committee of Factors Chain International, a world-wideassociation of factoring companies, headquarteredin Amsterdam. Mark has been on the committeefor five years. In addition, he is a director of the Toronto Chapter of the Commercial Finance Association.
To be held in June 2004, the Annual GeneralMeeting for Factors Chain International is beingco-hosted by Accord in Montreal. Mark is currentlyhelping to organize this meeting of internationalfactoring firms.
Mark is married 25 years to Florie, has one son,and loves travel and boating.
Accord’s staff complement contains the
best and the brightest in our industry.
These two profiles are prime examples
of our experience and expertise.
Fred Moss and Mark Perna are the
Presidents of two of our subsidiaries.
Each has unique skills that make them
leaders in their own right. When
joined with our other key management
Accord represents a powerhouse of
talent and abilities.
Fred was born in the shadow of Yankee Stadium,in the Bronx, NY in 1941.
He moved to Montreal in 1946 and in 1963 graduated from McGill University with a B. Comm., majoring in accounting. Fred receiveda Chartered Accountant’s designation in 1965and immediately entered the factoring industry.
Fred worked in various executive capacities witha series of companies that evolved into CanadianFinancial Corp. (Cafco), which was subsequentlyacquired by Bank of Virginia. In 1972, he wasappointed President of Cafco, which grew intoone of the leading factoring and commercialfinance companies in Canada.
In 1979 Fred left factoring and spent eleven years,first, as a turn-around specialist with an accountingfirm; he then started and operated a computer dealership in the pioneering days of that industry.Fred re-entered the factoring business in 1990 byfounding Montcap Financial Corp., which wassold to Accord in 1992.
He currently sits on the Board of Directors ofseveral Montreal philanthropic organizations.
Fred is married to Fran who helped in the formation of Montcap and is still an importantpart of the company. Fred and Fran have threegrown children and enjoy walking their dog, jogging, biking, dancing and country music.
P R O F I L E
FRED MOSSP R E S I D E N T
MONTCAP FINANCIAL CORP.
E M P L O Y E E P R O F I L E S
W H O W E A R E
P R O F I L E
MARK PERNAP R E S I D E N T
ACCORD BUSINESS CREDIT INC.
Corporate Finance
Accord Financial Sets StandardsFor Factoring
TORONTO—Accord Financial wasrecently cited as a benchmark forfactoring in McGraw-Hill Ryerson’sFundamentals of Corporate Finance,Fifth Canadian Edition which was published in February 2004.
6
Excerpts from a recent management meeting in preparation for the Annual Report. Management included Ken Hitzig, President of Accord FinancialCorp.; Stuart Adair, Chief Financial Officer of Accord Financial Corp.; Mark Perna, President of Accord Business Credit Inc.; Fred Moss, President ofMontcap Financial Corp.; and Tom Henderson, President of Accord Financial, Inc. Austin Beutel, Director, joined the discussion.
R E P O R T O N O P E R A T I O N S
M A N A G E M E N T ’ S R O U N D T A B L E D I S C U S S I O N
“Accord Business Credit’s bottom line increased despite a slight decrease in revenues.
We expect our marketing investments to bear fruit in 2004.” — Mark Perna
Q1 Ken: Our results for 2003 were
very gratifying; Accord appears to be on
an upward trend in earnings. Mark, tell
us how your operation did.
A1 Mark: We had a challenge to beat
our previous year’s results. We managed to
increase our volume a little bit, but our
revenue fell slightly due to lower yields.
Nevertheless, we did exceed the previous
year’s bottom line.
Q2 Ken: I understand your expenses
were well controlled. Were there any
exceptions?
A2 Mark: There were two. We allocated
more money for marketing. The benefits
should bear fruit in 2004. The other area
was credit losses; we had more of them
last year than 2002 and they amounted to
six basis points of volume. It was only
three basis points the prior year, but that
was exceptional. The long term average in
the industry is fifteen basis points so we
can’t really complain.
Q3 Ken: Fred, what was your year like?
A3 Fred: We were more than satisfied
with our results. Volume was up more
than ten percent, revenue was up twelve
percent, and our bottom line increased, to
a record for us, by seven percent.
Q4 Ken: It appears that your expenses
grew faster than revenue. Can you
explain that?
A4 Fred: Some of our overhead increases
were due to a ramping up in anticipation
of continued growth. Marketing costs, in
particular, grew by 22% over 2002. Like
Mark, some of the benefits were felt in
2003 and some are of a more long-term
nature. Our loan losses were also up
Mark PernaPresidentAccord Business Credit Inc.
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over 2002, but were still at a very
acceptable level.
Q5 Ken: Tom, you had to rebuild your
operation and do it in the face of a very
sluggish American economy. Your numbers
indicate you succeeded. Any comment?
A5 Tom: We had pretty well completed
our rebuilding program by the end of the
first quarter. The economy was unkind to
us until the third quarter, and then
business picked up. Our bottom line was
much better than 2002. It would have been
even better were it not for the adverse
impact of the legal settlement we made in
the second quarter.
Q6 Ken: Can you elaborate?
A6 Tom: We had been in a legal battle
in Florida, trying to defend ourselves from
an outrageous damage claim of US$40
million. We had provided a reserve of
Steven Lawee and Franco Di Zazzo had plenty of experience
working for two well-known national denim apparel distributors
when they decided to strike out on their own in 2002. They
established Sellmor Inc. to distribute unisex denim apparel under
the trade style of "Foxy Jeans".
Steven and Franco’s business strategy was to focus on larger, but fewer, customers. This concentration would
pose large credit risks that they wanted to avoid in order to protect their bank line as well as their capital. They
knew that one of their previous employers had used Accord’s services, so they came to us. As they put it, "We
wanted peace of mind."
The company’s business plan is working very well. Sales in 2003 were very substantial. They are expanding into
the U.S. market, and total sales will be at least double in 2004. They were pleased to know that Accord handles
the U.S. market as well.
In a conversation we had with Steven and Franco just before they left to display their line at the Magic Show in
Las Vegas, they praised our user-friendly on-line service as well as our Relationship Officer’s professionalism.
When asked what Accord’s biggest benefit was, they were quick to respond, "We get to look into the future as
to how we should approach our customers. If Accord scales back or cancels a customer’s credit line, it’s a signal
to start looking for business elsewhere."
“ACCORD GIVES US FINANCIAL SECURITYALLOWING US TO DO WHAT WE ENJOY ANDDO BEST — MARKETING OUR PRODUCTS.”
"We wanted peace of mind." — Steven Lawee and Franco Di Zazzo, Sellmor Inc.
Alexis Paul-MacDonald and Clive Swain, Accord Business Credit Inc.
C A S E S T U D Y O N E
8
“Montcap Financial Corp. had a record year in terms of net income. We have great plans
for our recently expanded export factoring program with a Canadian bank.” — Fred Moss
US$1.5 million in 2002 for the settlement
of this claim. The matter, which had been
on-going since 1996, was finally settled
out of court for US$2 million. As a result,
we provided an additional US$0.5 million
in 2003. It also cost us hundreds of
thousands of dollars in legal expenses in
both years, but we’re happy to put this
sorry episode behind us.
Q7 Austin: Stuart, Tom stated that
things improved in our U.S. operations
in 2003. If you look at the results in note
16 to the financial statements and ignore
the provision for settlement of claim and
income taxes, we see an adjusted pre-tax
income of $2,331,000 for 2003 and
$2,214,000 for 2002. I’m sure our
shareholders would like that explained.
A7 Stuart: The decline in the value of
the U.S. dollar against the Canadian dollar
in 2003 caused us some damage. The
average exchange rate was 1.57 in 2002,
but fell to 1.40 in 2003. As an illustration
of this, if you look at note 16, you will see
a 10% decline in revenue for the U.S.
segment of our business, from $7,411,000
in 2002 to $6,640,000 in 2003. In fact, in
U.S. dollars, revenue actually rose, from
$4,716,000 to $4,744,000. The impact of
the exchange rate change was quite
dramatic. In your example of the adjusted
pre-tax income, it would appear that
income was up $117,000, or 5%. In U.S.
dollars, excluding the provision for
settlement of claim, however, pre-tax
income was $1,672,000 in 2003 compared
with $1,410,000 in 2002, an improvement
of $262,000, or 19%.
Tom: We’re certainly in no position to
control exchange rates.
Q8 Austin: True enough. Stuart, the
decline in value of the U.S. dollar in
2003 appears to have reduced the value
of our long-term investment in our U.S.
subsidiary. Our shareholders will note
that the cumulative translation adjustment
account, part of their equity, has declined
Fred MossPresidentMontcap Financial Corp.
Founded by Richard Besner in 1980, RBA was Canada’s largest
independent provider of services and maintenance for computer
hardware and point of sale systems. Their client base included
national retail chains, banks and credit card companies, as well
as government institutions.
RBA was recovering from significant industry changes and operating losses. Despite managing the transition andbeing back on the road to profitability, RBA’s lender was unable to provide adequate funding.
RBA needed financing without restrictive equity covenants or a long-term contract. An investment banker hiredto source a credit facility, as well as to find a potential buyer for the business, introduced RBA to Montcap. Wequickly established a $4,000,000 accounts receivable discounting facility. Montcap’s stable financing helped RBAto sustain their growth and gave them the breathing room to negotiate a strong sale price.
Montcap worked closely with RBA to understand their systems, document flow, and billing procedures. Our abilityto operate in a Web-based environment gave us an advantage. We were able to complement RBA’s operationsand helped them maximize uninterrupted customer services.
Montcap’s financing allowed RBA to focus on their business instead of spending time juggling supplier payments.Moreover, our fees were less than the discounts they had been offering customers for early payments.
In October 2003 RBA was sold. On closing of the transaction, and the retirement of our facility, Mr. Besnerexpressed his appreciation of Montcap’s prompt professional services that provided him with a cash flow solutionwhen he needed it most.
"Montcap was there when we needed them. We could not have done this deal without their expertise and support." — Richard Besner, RBA Inc.
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from a positive figure of $4.3 million at
year-end 2002 to a negative figure of
$1.3 million at year-end 2003. How do you
arrive at this apparent $5.6 million "loss"?
A8 Stuart: For all intents and purposes,
this account measures the impact of
exchange gains and losses on our U.S.
subsidiary’s net assets at Balance Sheet
date. The Dec. 31, 2002 exchange rate
was 1.58; a year later it had fallen to 1.30.
Our paper loss on approximately US$20
million of net assets was $5.6 million.
Q9 Ken: Fred, what initiatives are you
working on currently?
A9 Fred: We have recently expanded
the referral arrangement we have with a
major Canadian bank. The bank, which
will no longer offer export factoring, has
chosen Montcap to provide an export
factoring program to their existing
customers and to future referrals.
M O N T C A P M A X I M I Z E S C H O I C E SF O R R B A I N C .
C A S E S T U D Y T W O
Robert Gauthier, Harold Shapiro, Rod Matheson and Steven Adler, Montcap Financial Corp.
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Q12 Ken: What’s the outlook for 2004?
A12 Mark: I don’t like to make
predictions, but we should have a good year.
Fred: I’m confident we’ll have our best
year ever.
Tom: Our portfolio was up 35% at year-
end compared to the year-end before; it
was at its highest year-end figure in three
years. Our momentum augurs well for
2004 – it looks like we might have our
best year in a long time.
Ken: Thank you for participating.
“Accord Financial, Inc.’s rebuilding program produced positive results. Our bottom line
was much better than 2002.” — Tom Henderson
Q10 Ken: Montcap has an association
with Liquid Capital, a franchisor of
small factoring companies. How did that
relationship progress during the year?
A10 Fred: There are now 25 licensees
across Canada that helped produce record
volume and loans for Montcap in 2003.
Significant growth is anticipated for 2004.
They are also planning to expand their
operation into the U.S. market this year.
Q11 Ken: Austin, the buzzword on
the street these days is "corporate
governance". Perhaps you’d like to tell
our readers what that’s all about, and
especially as it relates to Accord.
A11 Austin: The Ontario Securities
Commission has introduced a number of
initiatives affecting corporate oversight
by the Board of Directors similar in many
respects to those introduced in the
United States. These initiatives concern
the independence of the Board and the
Audit Committee, a review of the
effectiveness of the Board and its members,
limitations on Auditor participation in
non-audit work, and access by the Board
and its members to independent counsel.
The measures are designed to provide
more Board independence and transparency.
Accord has qualified on most of these
issues for several years.
Tom HendersonPresidentAccord Financial, Inc.
A $40 million company hired a turn-around specialist, attracted
additional equity, recruited a new CEO and CFO, and developed
a strategy to return to profitability. It seemed like a success story.
This is not how their bank saw it; it had lost confidence. The bank
pulled their line of credit and severed their 13-year relationship.
Then a replacement bank, after several weeks of due diligence,
decided at the last minute to turn down funding, leaving the firm
in a severe cash crunch. The company needed a $5 million line of credit to pay off a hastily arranged very
short-term loan, and they needed it "now".
Accord was approached by an investment banker about providing a receivables facility. The most important
criteria was that Accord be able to respond quickly.
And we did. Here’s what happened: We received financial statements and other company information on
November 26, the day before U.S. Thanksgiving. We began our due diligence over the Thanksgiving weekend.
The following Monday Accord executives visited the company. By Friday we had completed our due diligence,
approved a $5 million line and delivered contracts to the client. On Wednesday, December 10, we closed and
funded the transaction.
In 14 days the company had the funding they needed to survive. We did not sacrifice our high credit standards
or take shortcuts in moving quickly. With our years of experience and our dedicated professionals we have the
expertise to appraise each deal thoroughly and quickly.
"Accord put together and funded a $5 million credit line in just 2 weeks." — Tom Henderson, Accord Financial, Inc.
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One of our primary functions at Accord is tomanage risk and to assess credit quality. There arefive key benchmarks which tell us how well weare doing:
Portfolio turnoverWe try to minimize risk by turning our portfolioin as few days as possible. The turnover in 2003improved to 51 days compared with 52 days in 2002.
Past due receivables We also try to keep our past due receivables aslow as possible, for obvious reasons. Over the pastten years, the percentage of receivables past duemore than 60 days has ranged from a low of 5.6%to a high of 11.9%. At Dec. 31, 2003, the percentagewas at the ten year low of 5.6%.
Reserves to portfolio In an effort to minimize financial risk, we try tomaximize this measure. Over the past ten years, ithas been relatively consistent ranging between0.87% to 1.02%. The percentage at Dec. 31, 2003was 0.96%.
Reserves to net charge-offs Ideally, this percentage should be greater than50% which is to say that the year-end reservewould absorb about six months of charge-offs.This number has been consistently over 50% since1995, except for the 21.5% in 2001. At Dec. 31,2003 this percentage was a strong 173%.
Net credit losses to non-recourse volumeThis is an important benchmark. The long termindustry average is in the 15 to 20 basis pointsrange. Our record has been very good since 1995.The figure in 2003 was 6 basis points.
F I V E K E Y B E N C H M A R K S
A C C O R D M O V E S F A S T.
C A S E S T U D Y T H R E E
Leslie Ward, Len Broderick, Gwen Taft and Kim Sons, Accord Financial, Inc.
12
OV E RV I E W
The following discussion and analysis
explains trends in the Company’s financial
condition and results of operations for the
year ended Dec. 31, 2003 compared with
previous years. It is intended to help
shareholders and other readers understand
the dynamics of the Company’s business and
the factors underlying its financial results.
Where possible, issues have been identified
that may impact future results. This MD&A
should be read in conjunction with the
Company’s 2003 audited consolidated
financial statements and notes thereto
(the "Statements"), the Ten Year Financial
Summary and the President’s Letter to the
Shareholders, all of which form part of
its 2003 Annual Report. Additional
information pertaining to the Company,
including its Annual Information Form, is
filed with SEDAR at www.sedar.com.
All amounts discussed in this MD&A are
expressed in Canadian dollars unless
otherwise stated and have been prepared
in accordance with Canadian generally
accepted accounting principles (“GAAP”).
Please refer to note 3(c) to the Statements
regarding the Company’s use of accounting
estimates in the preparation of its financial
statements in accordance with GAAP.
The following discussion contains certain
forward-looking statements that are subject
to significant risks and uncertainties that
could cause actual results to differ materially
from historical results and percentages.
Accord Financial Corp. is a leading North
American provider of a broad range of
asset-based financial services to businesses,
including factoring, lending, financing,
collection services, credit investigation
and guarantees. Its clients operate in many
industries, including apparel, automotive,
temporary staffing, telecommunications,
textiles, printing, sporting goods, leisure
products, transportation, footwear, floor
coverings, financial services and industrial
products.
Factoring in North America continues to
be in transition with the consolidation and
merger of major factors, and the entry of
new players in niche markets. The Company
continues to actively search for and
investigate new business opportunities and
acquisitions to fuel continued growth.
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F
R E S U LT S O F O P E R AT I O N S A N D F I N A N C I A L C O N D I T I O N ("MD&A")
Stuart AdairChief Financial OfficerAccord Financial Corp.
“Accord’s principle objective is managed growth. Our marketing initiatives and
alliances are starting to produce results.” — Stuart Adair
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R E S U LT S O F O P E R AT I O N S
In 2003 the volume of receivables factored
by the Company increased by 5% to
$1.44 billion, an annual record, compared
with $1.37 billion in 2002. International
volume, mostly cross-border business
between the U.S. and Canada, declined to
approximately $281 million or 20% of the
Company’s total 2003 volume compared to
$316 million or 23% in 2002.
Total revenue in 2003 declined by $21,000
to $26,214,000 compared to 2002.
Revenue did not increase in line with
volume principally as a result of a decline
in discount rates in our U.S. subsidiary due
to improved client quality and the loss of
R E S U L T S O F O P E R A T I O N S
Years ended December 31 2003 2002Actual % of Actual % of % change from
Revenue Revenue 2002 to 2003
Factoring volume (millions) $ 1,439 $ 1,366 5.3%
RevenueFactoring commissions,
discounts, interest and other income $ 26,213,614 100.0% $ 26,135,135 99.6% 0.3%
Gain on sale of affiliate — — 99,900 0.4% -100.0%26,213,614 100.0% 26,235,035 100.0% -0.1%
ExpensesInterest 772,279 2.9% 756,843 2.9% 2.0%General and administrative 14,174,734 54.1% 14,323,860 54.6% -1.0%Credit and loan losses 1,230,799 4.7% 1,189,567 4.5% 3.5%Depreciation 418,148 1.6% 407,820 1.6% 2.5%Provision for settlement of claim 712,393 2.7% 2,338,973 8.9% -69.5%
17,308,353 66.0% 19,017,063 72.5% -9.0%Earnings before income taxes 8,905,261 34.0% 7,217,972 27.5% 23.4%Income taxes 3,066,000 11.7% 2,569,196 9.8% 19.3%Net earnings $ 5,839,261 22.3% $ 4,648,776 17.7% 25.6%
The Company owned three factoring
operations during fiscal 2003, namely, in
Canada, Accord Business Credit Inc. ("ABC")
and Montcap Financial Corp. ("MFC"),
and, in the United States of America,
Accord Financial, Inc. ("AFI"). ABC has
been in operation since 1978. AFI and
MFC were acquired on Dec. 31, 1992.
These subsidiaries’ operations are discussed
further in the body of the Company’s 2003
Annual Report.
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1.011.07 1.02 1.10
1.30
1.01
1.37
1.25
1.371.441.5
1.2
0.9
0.6
0.3
0
FACTORING VOLUME(in billions of dollars)
Volume rose by 5% to a Companyrecord $1.44 billion in 2003.
14
Interest expense increased slightly to
$772,000 in 2003 compared to $756,000
in 2002. Average bank indebtedness rose
slightly in 2003, although, at December 31,
2003, bank indebtedness, net of cash on
hand, was more than twice the previous
year end. The average Canadian prime rate
of interest was 4.7% per annum in 2003,
up from 4.2% in 2002, while the average
U.S. prime rate was 4.1%, down from 4.7%
in 2002.
The Company's agreements with its lenders
(interest expense) and clients (interest
revenue) provide for a rate adjustment in
the event of interest rate fluctuations so
that the Company's spreads are essentially
protected. However, as the Company’s
factored receivables and loans substantially
exceed its borrowings, the Company
does have some exposure to interest
rate fluctuations.
General and administrative (“G&A”)
expenses principally comprise personnel
61 cents compared with 49 cents in 2002.
The Company’s return on average
shareholders’ equity improved to 13.2%
in 2003 compared with 10.6% last year.
The Company’s target is to achieve a rate
of return of at least 15% per annum. The
Company’s Canadian and U.S. factoring
operations both reported improved results
in 2003 (see pages 16 and 17).
interest income from a former affiliate.
Revenue in 2003 was adversely impacted
by the decline in the U.S. dollar against the
Canadian dollar, which caused a reduction
in revenue of approximately $780,000
from our U.S. operations. In 2002, revenue
included interest of approximately $600,000
on loans to a former affiliate and a $99,900
gain on the sale of the former affiliate.
Net earnings in 2003 increased by 26%
to $5,839,000 compared with $4,649,000
in 2002. Diluted earnings per share were
QUARTERLY F I NANCIAL IN FORMATION(unaudited, in thousands of dollars)
DilutedTotal Net Earnings
Quarter ended Revenue Earnings Per Share
2003 March 31 $ 6,197 $ 1,129 $ 0.12
June 30 6,281 1,119 0.12
September 30 6,577 1,539 0.16
December 31 7,159 2,052 0.21
Total $ 26,214 $ 5,839 $ 0.61
2002 March 31 $ 6,663 $ 1,189 $ 0.12
June 30 5,864 1,234 0.13
September 30 6,306 1,300 0.14
December 31 7,402 926 0.10
Total $ 26,235 $ 4,649 $ 0.49
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80
70
60
50
40
30
20
10
0
46 49
64
42
76
30
49
61
DILUTED EARNINGS PER SHARE(in cents)
Diluted earnings per shareincreased to 61 cents in 2003 dueto a 26% rise in net earnings.
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costs (over half of the total of G&A
expenses), occupancy costs, commissions
to third parties, marketing expenses,
professional fees, data processing, travel,
telephone, and general overheads. G&A
expenses decreased slightly to $14,175,000
in 2003 from $14,324,000 the previous
year. Higher expenses at MFC, whose
operating costs have increased to support
its growth, were more than offset by the
impact of the weaker U.S. dollar, which
served to reduce the Canadian dollar
equivalent of our U.S. expenses by
approximately $480,000. Overall, G&A
expenses were 54% of gross revenue in
2003 compared with 55% in 2002.
Credit and loan losses increased by 3%
to $1,231,000 in 2003 from $1,190,000
in 2002. Net charge-offs were $1,188,000
compared with $882,000 last year, while
the allowance for losses or reserves expense
was $43,000 compared to $308,000 in
2002. The increase in net charge-offs
resulted from a couple of significant
insolvencies amongst ABC’s customers.
The Company’s credit and loan losses in
2003, as a percentage of revenue, were
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25
20
15
10
5
0
28.0
25.2
28.8 29.9
24.5
28.1
20.9 20.221.3
20.0
OPERATING EXPENSES(as a percentage of average assets)
This percentage declined to a ten year low in 2003 as assetsincreased and expenses declined.
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(.035)
1.91
1.06 1.061.401.51
1.33
6.75
1.19 1.23
CREDIT & LOAN LOSSES(in millions of dollars)
Credit & loan losses incurred in2003 remained at historically lowlevels despite the record volumeof receivables factored in 2003.
'94 '95 '96 '97 '98 '99 '00 '01 '02 '03
(0.2)
10.3
5.4 5.2 5.4
7.4
4.3
24.0
4.5 4.7
CREDIT & LOAN LOSSES(as a percent of revenue)
Credit & loan losses at 4.7% of revenue in 2003 were acceptableand below the 7. 4% average forthe last ten years.
16
4.7%, slightly above last year’s 4.5%. This
experience compares favorably with the
7.4% average over the last ten years.
Depreciation on capital assets increased
slightly to $418,000 in 2003 compared
with $408,000 in 2002.
During 2003 the Company’s U.S. subsidiary
settled an outstanding legal claim for
US$2,000,000. It had made a provision
of US$1,500,000 (C$2,339,000) for the
settlement of this claim in 2002 as its
best estimate at the time of the amount
required to settle the claim. The Company
subsequently provided an additional
US$500,000 (C$712,000) in the second
quarter of 2003 when the settlement was
average assets and shareholders’ equity,
which increased to 8.0% and 13.2%,
respectively, in 2003. Improvements in
these returns resulted from a 26% increase
in net earnings. Net revenue as a percentage
of average assets at 35% is slightly below
2002. It has dipped in recent years as the
increase in assets – greater factored
receivables and loans to clients – rose at a
faster rate than net revenue. The ratio of
operating expenses to average assets has
declined substantially since 1998, as average
assets increased. The ratio in 2003 was
20% compared with 21% last year.
Canad ian operat ions
Canadian operations reported a 4% increase
in net earnings for 2003, which rose to
$4,865,000 largely as a result of volume
and revenue increases of 5% over 2002
(see note 16 to the Statements). Canadian
volume was the highest in the Company’s
25 year history, while revenue increased to
$19,907,000. Interest expense, including
interest on surplus funds borrowed from
finally agreed and the exact amount
determined. This expense is disclosed
separately in the Company’s Consolidated
Statement of Earnings and detailed in
note 14 to the Statements. The President’s
Letter and Management’s Roundtable also
discuss this claim.
Income taxes for 2003 increased by 19%
to $3,066,000 compared to $2,569,000
last year as earnings before taxes improved
by 23%. The effective corporate income
tax rate for 2003 was 34.4%, lower than
2002’s 35.6%, as a result of a decrease in
Canadian tax rates.
Table 1 highlights the Company’s
profitability in terms of returns on its
TA B L E 1 — P R O F I TA B I L I T Y R AT I O S
(as a percentage) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Return on average assets 7.92 13.03 12.54 13.43 12.50 11.61 10.49 3.98 6.71 8.00
Return on average equity 19.36 26.10 21.47 20.32 18.72 21.18 21.12 7.01 10.57 13.23
Net revenue /Average assets 52.01 57.66 57.10 56.75 51.89 45.90 40.27 36.32 36.77 34.86
Operating expenses /Average assets 25.16 27.95 28.13 28.82 29.86 24.51 20.88 20.21 21.26 20.00
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AFI, rose by 29% to $1,011,000 as Canadian
borrowings and interest rates increased in
2003. G&A expenses increased by 6% to
$10,182,000 as Canadian operations
expanded. Credit and loan losses, although
increasing by 28% in 2003 to $1,073,000,
as a result of a few significant insolvencies,
were still at historically low levels.
MFC, our asset-based lending subsidiary,
saw continued expansion in 2003, while
ABC, our more mature "old-line" factoring
subsidiary, saw a smaller improvement in
earnings. The prospects for 2004 remain
strong with solid growth anticipated
at MFC.
U.S . operat ions
U.S. operations reported substantially
improved net earnings in 2003; $974,000
compared to 2002’s loss of $25,000.
After "retrenching" in 2002 as a result of
substantial loan losses the previous year,
our U.S. operations stabilized in 2003.
U.S. volume, in U.S. dollars, actually
increased by 20% in 2003. However, as a
result of lower yields, resulting from the
improved quality of its client base, and
the loss of interest revenue from a former
affiliate, revenue, in U.S. dollars, increased
only slightly. In Canadian dollars, revenue
actually declined by $771,000 to
$6,640,000. As noted above, the Company
estimates that the weaker U.S. dollar in 2003
reduced the Canadian dollar equivalent
of our U.S. revenue by approximately
$780,000. G&A expenses were 13% lower
in 2003, largely as a result of the weaker
U.S. dollar. In actuality, our U.S. subsidiary
runs a lean operation and its expenses are
relatively stable; in U.S. dollars, U.S.
expenses declined by 4% as AFI reduced
certain costs. U.S. loan losses totalled only
$158,000 in 2003, a testament to AFI’s
current portfolio quality and a reduction
from the $352,000 incurred in 2002.
As discussed above, AFI provided an
additional $712,000 (US$500,000) for the
settlement of a legal claim in 2003 on top
of the $2,339,000 (US$1,500,000) it set
aside in 2002. The US$2.0 million
settlement was concluded in late 2003.
Our U.S. operation is anticipating further
improvement in 2004 as it builds upon
a number of new loans added to its
portfolio in the fourth quarter of 2003.
Non-GAAP earn ings measure
Excluding the after-tax impact of the
provisions for settlement of claim in 2003
($440,000) and 2002 ($1,444,000), which
the Company considers to be non-operating
expenses, the Company’s net earnings
would have increased by 3% to $6,279,000
in 2003 compared to $6,093,000 last year,
while diluted earnings per share would
have increased to 65 cents compared to
64 cents last year.
R E V I E W O F BA L A N C E S H E E T
The Company’s consolidated financial
position at Dec. 31, 2003 weakened
somewhat compared to the previous year
18
end. Shareholders’ equity was $44,800,000
at Dec. 31, 2003, a decline of $828,000
from the previous year end. Book value per
share was $4.64 at Dec. 31, 2003 compared
to $4.80 a year earlier. As discussed on
page 22, a $5,666,000 (59 cents per share)
decline in the cumulative translation
adjustment component (“CTA”) of
shareholders’ equity was the cause of
the decline.
Total assets were $74,699,000 at Dec. 31,
2003, an increase of $3,444,000 from
Dec. 31, 2002. As detailed in the Ten Year
Financial Summary on page 26, total
assets have grown significantly in the last
ten years. The increase in total assets in
2003 was in spite of the weaker U.S dollar,
which has adversely impacted the Canadian
dollar equivalent of our U.S. assets by
over $6,000,000.
Table 2 highlights the composition of the
Company’s balance sheet. The first two
ratios in the table (58% and 60%),
detailing equity as a percentage of assets,
are considerably higher than those of
most financial companies indicating the
Company’s continued financial strength.
Excluding inter-company loans, 63% of
identifiable assets were located in Canada
and 37% in the United States of America
at Dec. 31, 2003 compared with 61% and
39%, respectively, at Dec. 31, 2002 (see
note 16 to the Statements). The decrease
in percentage of U.S. based assets in 2003
resulted from an increase in factored
receivables and loans in Canada, and a
weakening of the U.S. dollar against the
Canadian dollar in 2003, which, as noted
above, significantly reduced the Canadian
dollar equivalent of our U.S. assets.
TA B L E 2 — B A L A N C E S H E E T C O M P O S I T I O N
(as a percentage) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Tangible equity / Assets 30.43 47.21 54.78 73.42 56.78 47.40 47.07 61.01 61.91 58.30
Equity / Assets 46.65 55.78 61.34 77.33 62.68 50.74 49.43 63.29 64.03 59.97
Term debt / Equity 0 0 0 0 0 0 0 0 0 0
Receivables ($000):
Owned 26,301 28,273 32,276 29,558 41,248 60,528 77,298 64,036 65,893 70,561
Managed 106,013 95,236 91,673 101,200 108,549 127,306 101,233 93,298 134,879 124,120
Total portfolio 132,314 123,509 123,949 130,758 149,797 187,834 178,531 157,334 200,772 194,681
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1.771.47
2.53
2.97
3.37
2.12
4.12
4.484.80
4.645
4
3
2
1
0
BOOK VALUE PER SHARE(in dollars at December 31)
Book value per share declined by 16 cents in 2003 to $4.64 as aresult of a 59 cents per sharedecline in the CTA component ofshareholders’ equity.
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The Company’s business involves
(i) financing receivables on a recourse basis
for some of its clients, as well as financing
other tangible assets, such as inventory
and equipment, and (ii) providing credit
guarantees and collection services on a
non-recourse basis, without financing, for
other clients.
Factored receivables and loans, net of
allowances for losses, increased by
$4,625,000 or 7% to $68,694,000 at
Dec. 31, 2003 compared with $64,069,000
last year end. Factored receivables and loans
in Canada and the U.S. grew by 5% and
11%, respectively, during 2003. In the U.S.
the increase came in spite of an 18% decline
in the U.S. dollar against the Canadian
dollar. In fact, in U.S. dollars, our U.S.
factored receivables and loans rose by 35%
in 2003 as a number of significant new loans
were added in the fourth quarter of 2003.
As noted above, the Company also contracts
with other clients to assume the credit risk
associated with respect to their receivables.
Since the Company does not take title to
these receivables, they do not appear on its
balance sheet. These "managed receivables"
declined to $124 million at Dec. 31, 2003
compared to the record $135 million at
Dec. 31, 2002.
The Company’s total portfolio declined
by 3% to $195 million at Dec. 31, 2003
compared to the record $201 million at
the end of 2002 (see Table 2 and Total
Portfolio bar chart for a ten year history).
All credit is subject to management review
as detailed in note 4 to the Statements.
Nevertheless, for a variety of reasons, there
will inevitably be defaults by customers
and clients. Our primary focus continues
to be the creditworthiness and collectibility
of our clients’ receivables. Monitoring and
communicating with these customers is
measured by, among other things, an
analysis which indicates the amount of
receivables current and past due. Different
industries factored by Accord have varying
payment terms, though most customers
are shipped with due dates ranging from
30 to 60 days from original shipping or
invoice date. Of the total portfolio, 5.6%
was past due more than 60 days at
Dec. 31, 2003, an improvement over last
year end’s 7.6%.
200
175
150
125
100
75
50
25
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124132 131
150
188
124
178
157
201 195
TOTAL PORTFOLIORECEIVABLES, OWNED AND MANAGED(in millions of dollars at December 31)
The Company’s total portfolio ofreceivables declined slightly to $195 million at Dec. 31, 2003 fromDec. 31, 2002’s record high.
20
Table 3 highlights the credit quality of the
Company’s portfolio, both owned and
managed. Our charge-off experience for
non-recourse receivables was 6 basis points
of volume in 2003 and has been 6 basis
points or less annually since 1995. Net
charge-offs (credit and loan losses excluding
the change in allowance for losses), as
noted above, increased to $1,188,000 in
2003 compared with $882,000 last year.
After the customary detailed year end
review of the portfolio, all problem accounts
and loans were identified and provided for.
The allowance for losses or reserves
increased slightly to $1,867,000 at Dec. 31,
2003 compared to $1,824,000 at Dec. 31,
2002. This estimate is particularly
judgmental and management believes that
the allowance for losses is adequate.
Cash balances decreased to $2,562,000 at
Dec. 31, 2003 compared to $3,134,000 at
the end of 2002. The Company endeavours
to maintain as low a cash balance as
possible when it has bank indebtedness
outstanding. However, due to the large
volumes of cash being processed daily it is
necessary that a certain amount of cash be
held to fund daily client requirements.
Future income tax assets declined to
$208,000 at Dec. 31, 2003 compared
with $1,104,000 last year. The decrease
principally pertains to the utilization this
year of the tax benefit associated with the
$2,339,000 provision established for the
settlement of a claim in 2002.
Capital assets rose to $1,271,000 at Dec. 31,
2003 from $1,154,000 at Dec. 31, 2002.
Capital assets acquired during the year,
net of disposals, amounted to $535,000
and principally comprised leasehold
improvements, computer equipment
and automobiles.
Goodwill, net of accumulated amortization,
was $1,247,000 at Dec. 31, 2003
compared to $1,517,000 at Dec. 31, 2002.
In accordance with GAAP, goodwill is no
longer amortized (see note 3(g) to the
Statements). Goodwill, however, is subject
to an annual impairment test. In 2003 and
2002, the Company determined there was
no impairment to the carrying value of
goodwill. The decrease in goodwill in
2003 relates to the translation of the
US$962,000 of goodwill balances into
TA B L E 3 — C R E D I T Q U A L I T Y
(as a percentage) 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
Portfolio turnover (days) 49 51 47 52 51 50 53 54 52 51
Accounts rec. past due more than 60 days/Non-recourse accts. rec. 8.40 11.90 7.50 7.10 7.60 10.10 9.70 9.80 7.60 5.60
Reserves / Portfolio 0.88 0.90 0.88 0.87 0.88 0.94 1.02 0.96 0.91 0.96
Reserves / Net charge-offs 47.40 N/A 71.52 112.32 149.15 183.14 142.96 21.49 206.80 173.03
Net credit losses / Factored(non-recourse) volume 0.32 0.00 0.00 0.04 0.05 0.06 0.05 0.06 0.03 0.06
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Canadian dollars at different prevailing
year end exchange rates.
Total liabilities were $29,899,000 at Dec. 31,
2003, a $4,272,000 increase from last year
end. The increase is explained below.
Bank indebtedness increased by $9,747,000
or 95% to $20,045,000 at Dec. 31, 2003
compared with $10,298,000 at Dec. 31,
2002. Bank loans are secured primarily by
factored receivables and loans to clients.
The Company has no term debt outstanding.
The increase in bank indebtedness
principally resulted from increased factored
receivables and loans and from reductions
in amounts due to clients and accounts
payable and other liabilities.
Amounts due to clients principally consist
of collections of managed receivables not
yet remitted to the clients. Contractually,
the Company remits collections a day or
two after receipt. The balance declined by
$2,473,000 to $4,310,000 at Dec. 31, 2003
compared to $6,783,000 at the end of the
previous year.
Accounts payable and other liabilities
decreased to $2,147,000 million at Dec. 31,
2003, a $2,194,000 reduction from last
year end. The decrease principally relates
to payment in 2003 of the C$2,339,000
(US$1,500,000) provision for settlement
of claim accrued in 2002.
Income taxes receivable were $490,000 at
Dec. 31, 2003 compared to income taxes
payable of $797,000 at the end of 2002.
The change results from an increase in
income tax instalments paid during the
year and the deductibility for income tax
purposes in 2003 of the US$1,500,000
provision for settlement of claim established
last year.
Deferred income, which comprises the
deferral of a portion of factoring
commissions and discounts until collection
of the underlying receivables (see note
3(d) to the Statements), totalled $915,000
at Dec. 31, 2003, slightly below last year
end’s $956,000. The decline parallels the
decrease in the Company’s total portfolio
at year end.
Notes payable represent funds borrowed
on an unsecured basis and repayable on
demand from management, employees,
and their families and friends. Notes
payable increased slightly to $2,482,000 at
Dec. 31, 2003 compared to $2,451,000 at
Dec. 31, 2002. Interest expense on these
Notes for 2003 was $102,000 compared
with $77,000 in 2002.
Capital stock rose by $529,000 in 2003 to
$4,660,000 at Dec. 31, 2003 as 136,000
stock options were exercised by directors
and key management employees. In 2002,
10,000 stock options were exercised for
proceeds of $39,000. At Dec. 31, 2003
there were 9,649,571 common shares
outstanding compared with 9,513,257 at
Dec. 31, 2002. Details of stock options
22
outstanding at Dec. 31, 2003 and those
granted, exercised and cancelled in 2003
are set out in note 11 to the Statements.
In 2004 the Company will account for stock
options at their fair value in accordance
with the amended accounting requirements
of The Canadian Institute of Chartered
Accountants Handbook Section 3870,
“Stock-based Compensation and Other
Stock-based Payments”. This will require
that the Company expense the fair value of
the stock options granted.
Retained earnings increased by $4,308,000
in 2003 to $41,474,000 at Dec. 31, 2003.
The increase was comprised of net
earnings of $5,839,000 less dividends paid
to shareholders of $1,531,000 (16 cents
per share).
The CTA component of shareholders’
equity declined by $5,666,000 in 2003.
There was a negative balance of $1,334,000
at Dec. 31, 2003 compared to a positive
balance of $4,332,000 at Dec. 31, 2002.
This decline reduced the Company’s book
value per share by 59 cents. This significant
decrease was caused by the impact of the
decline in the U.S. dollar against the
Canadian dollar in 2003 on the Company’s
net investment in its U.S. subsidiary of
approximately US$20 million. The U.S.
dollar declined by 18% in 2003 against
the Canadian dollar from approximately
1.58 at the beginning of the year to
approximately 1.30 at the end of the year.
LIQU I D ITY AN D CAPITAL RESOU RCES
The Company’s financing and capital
requirements generally increase
proportionately with the level of factored
receivables and loans outstanding. The
collection period and resulting turnover
of outstanding receivables also impact
financing needs.
In addition to cash flow generated from
operations, the Company’s subsidiaries
maintain bank lines of credit in Canada and
the United States. Borrowings are usually
margined as a percentage of outstanding
factored receivables and loans.
The Company had credit facilities totalling
approximately $56,500,000 at Dec. 31,
2003 and had borrowed $20,045,000
against these facilities. Available internal
funds have decreased the usage of, and
dependence on, these lines.
As noted above, the Company had cash of
$2,562,000 at Dec. 31, 2003, a decrease of
$572,000 from the end of 2002.
Cash inflows from earnings before changes
in non-cash operating items totalled
$7,016,000 in 2003, a 59% increase
compared with $4,416,000 last year. After
cash outflows due to changes in non-cash
operating items of $10,573,000 are taken
into account, there was a net cash outflow
from operating activities of $3,557,000 in
2003, compared with a cash inflow of
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$5,831,000 in 2002. Changes in non-cash
operating items accounting for the cash
outflow in 2003 are discussed in the Review
of Balance Sheet section above. Please also
refer to the Company’s Consolidated
Statements of Cash Flows on page 33.
Net cash outflows from investing activities
totalled $535,000 in 2003 compared to
$306,000 last year. These comprised of
capital expenditures in 2003, while, in
2002, net cash outflows comprised of
capital expenditures of $406,000, partly
offset by the $100,000 received from the
sale of a former affiliate.
Net cash inflows from financing activities
totalled $8,775,000 in 2003 compared to
net cash outflows of $2,394,000 in 2002.
In 2003, bank indebtedness rose by
$9,746,000, while $529,000 and $31,000
were received from the issuance of shares
and notes payable, respectively. Offsetting
these cash inflows were dividends of
$1,531,000 paid to shareholders. In 2002,
the net cash outflows resulted from a
decline in bank indebtedness of $1,434,000
and payment of dividends to shareholders
of $1,331,000, while cash of $371,000
was raised from the issue of notes payable
and shares.
The effect of change from translation in
2003 comprised a $5,256,000 reduction
compared to a $330,000 reduction last year.
This largely resulted from the $5,666,000
decline in the CTA balance discussed above.
Overall, there was a $572,000 decrease
in cash balances in 2003 compared to a
$2,801,000 increase in 2002.
Management believes that current cash
balances and existing credit lines together
with cash flow from operations will be
sufficient to meet the cash requirements
of working capital, capital expenditures,
operating expenditures, and quarterly
dividend payments and provide sufficient
liquidity and capital resources for future
growth in 2004.
O U T LO O K
The Company’s principal objective is
managed growth – putting quality new
business on the books while adhering to
high standards of credit quality. Recent
marketing initiatives and alliances are
beginning to bear fruit. Export Ease, our
export factoring program, and our
association with Liquid Capital are
producing growth. In 2002, MFC entered
into a referral program with a major bank,
which we hope will lead to significant new
business. In early 2004, MFC expanded its
referral program with the bank to provide
an export factoring program to the bank’s
existing customers and future referrals.
New sales staff were added in 2003 in our
U.S. operation and it too is starting to see
increased growth and deal flow as the U.S.
economy continues to improve. ABC is
benefiting from a tightening in the credit
insurance industry although its market
remains highly competitive.
24
Through experienced management and
staff, coupled with its financial resources,
the Company is well positioned to meet
increased competition and develop new
opportunities. We continue to look to
introduce new financial and credit services
to fuel growth in a very competitive and
challenging environment. Finally, we
continue to seek promising companies or
loan portfolios to acquire.
The Company is cautiously optimistic
about its future prospects.
R I S K S A N D U N C E RTA I N T I E S T H AT
C O U L D A F F E C T F U T U R E R E S U LT S
Past performance is not a guarantee of
future performance. Although management
remains optimistic about the Company’s
long-term prospects, future results are
subject to substantial risks and uncertainties.
Factors that may cause such differences
include, but are not limited to, the factors
discussed below.
Compet i t ion
The Company operates in an intensely
competitive environment and its results
could be significantly affected by the
activities of other industry participants.
The Company expects competition to
persist and intensify in the future as the
markets for its services continue to develop
and as additional companies enter its
markets. There can be no assurance that
the Company will be able to compete
effectively with current and future
competitors. If these or other competitors
were to engage in aggressive pricing policies
with respect to competing services, the
Company would likely be forced to lower its
rates, which could have a material adverse
effect on its business, operating results and
financial condition. The Company will not,
however, compromise its credit standards.
Economic s lowdown
The Company principally operates in
Canada and the U.S. Recently, the Company
has witnessed the weakening of the
economic environment in the U.S. We are
just starting to see a turnaround in
economic performance in the U.S. and that
of our U.S. subsidiary. Economic weakness
affects our ability to do new business as
quality prospects become limited. Further,
our clients and their customers are often
adversely affected by an economic
slowdown and this can lead to an increase
in the Company’s credit and loan losses.
Cred i t and loan losses
The Company is in the business of
factoring its clients’ receivables. Outstanding
receivables totalled approximately
$195 million at year end. Operating
results may be adversely affected by large
bankruptcies and/or insolvencies.
Fore ign currency r i sk
The Company operates internationally.
Accordingly, a portion of its financial
resources are held in currencies other than
the Canadian dollar. Our policy with
respect to foreign currency exposure is
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S U M M A R Y
• Net earnings increased by 26% to $5,839,000 in 2003 compared to 2002
• Diluted earnings per share increased by 24% to 61 cents in 2003 comparedto 49 cents in 2002
• Excluding the $440,000 after tax impact of the provision for settlementof claim, net earnings would have been $6,279,000 or 65 cents per diluted share in 2003
• Return on Shareholders’ equity improved to 13.2% in 2003 comparedto 10.6% in 2002
• Book value per share declined to $4.64 per share at Dec. 31, 2003 compared to $4.80 at Dec. 31, 2002 as a result of a 59 cents per share decrease in the CTA component of shareholders’ equity
• Factoring volume was a record $1.44 billion in 2003
to manage financial exposure to certain
foreign exchange fluctuations and to
attempt to neutralize the impact of foreign
exchange movements where possible.
In 2003, the Company saw the weakening
of the U.S. dollar against the Canadian
dollar affect our current year operating
results upon the translation of our U.S.
subsidiary’s results into Canadian dollars.
It also caused a significant decrease in the
value of the Company’s net investment in
its U.S. subsidiary, which substantially
reduced shareholders’ equity.
Potent ia l acqu i s i t ions and
inves tments
The Company expects to continue to
acquire or invest in businesses that expand
or complement the Company’s current
business. Such acquisitions or investments
may involve significant commitments of
financial or other resources of the Company.
There can be no assurance that any such
acquisitions or investments will generate
additional earnings or other returns for
the Company, or that financial or other
resources committed to such activities
will not be lost. Such activities could also
place additional strains on the Company’s
administrative and operational resources
and its ability to manage growth.
Personne l s ign i f i cance
Employees are a significant asset of the
Company. Market forces and competitive
pressures may adversely affect the ability
of the Company to recruit and retain key
qualified personnel. The Company mitigates
this risk by providing a competitive
compensation package, which includes
stock options and profit sharing, as it
continuously seeks to align the interests
of employees and shareholders.
26
All figures are in thousands
except factoring volume
(in millions) and earnings,
dividends and book value
per share and share
price history.
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003Factoring volume $ 1,069.7 1,013.5 1,013.6 1,016.4 1,097.0 1,303.9 1,372.4 1,252.9 1,366.0 1,438.7Revenue $ 18,610 19,690 20,331 19,672 20,275 26,144 31,031 28,197 26,235 26,214Interest 1,334 1,048 961 553 493 1,697 2,516 1,569 757 773General & administrative 8,198 8,830 9,210 9,387 11,049 12,635 14,422 14,422 14,324 14,175Credit & loan losses 1,912 (35) 1,510 1,060 1,061 1,403 1,328 6,754 1,189 1,231Depreciation & amortization 2,452 2,511 1,672 1,708 590 820 654 828 408 418Provision for settlement of claim — — — — — — — — 2,339 712Total expenses 13,896 12,354 13,353 12,708 13,193 16,555 18,920 23,573 19,017 17,309Earnings before tax 4,714 7,336 6,978 6,964 7,082 9,589 12,111 4,624 7,218 8,905Income taxes 1,792 2,782 2,725 2,440 2,317 3,405 4,683 1,705 2,569 3,066Non-controlling interest 290 341 — — — — — — — —Net earnings $ 2,632 4,213 4,253 4,524 4,765 6,184 7,428 2,919 4,649 5,839
Average shares outstanding 10,230 10,230 10,230 9,884 9,413 9,357 9,437 9,503 9,511 9,557Earnings per share - basic $ 0.26 0.41 0.42 0.46 0.51 0.66 0.79 0.31 0.49 0.61
- diluted $ 0.26 0.41 0.42 0.46 0.49 0.64 0.76 0.30 0.49 0.61Dividends per share $ 0.06 0.07 0.08 0.085 0.10 0.12 0.14 0.14 0.14 0.16
Factored receivables and loans $ 25,133 27,156 31,181 28,418 39,930 54,993 69,488 62,520 64,069 68,694Other assets 7,008 5,369 4,521 3,554 4,360 7,349 9,797 4,807 7,186 6,005Total assets $ 32,141 32,525 35,702 31,972 44,290 62,342 79,285 67,327 71,255 74,699
Bank indebtedness $ 7,189 4,381 7,852 1,717 7,559 20,714 30,748 11,732 10,298 20,045Due to clients 3,029 3,051 3,515 2,368 3,594 4,852 3,487 7,932 6,783 4,309Other liabilities 2,841 2,758 1,838 2,281 3,649 3,374 3,273 1,998 5,139 2,147Deferred income 587 615 661 695 753 1,028 1,124 937 956 916Notes payable 1,579 1,367 170 185 974 742 1,466 2,119 2,451 2,482Total liabilities 15,225 12,172 14,036 7,246 16,529 30,710 40,098 24,718 25,627 29,899Non-controlling interest 1,922 2,210 — — — — — — — —Shareholders’ equity 14,994 18,143 21,666 24,726 27,761 31,632 39,187 42,609 45,628 44,800Total liabilities & equity $ 32,141 32,525 35,702 31,972 44,290 62,342 79,285 67,327 71,255 74,699
Shares outstanding at Dec. 31 10,230 10,230 10,230 9,779 9,337 9,383 9,503 9,503 9,513 9,650Book value per share $ 1.47 1.77 2.12 2.53 2.97 3.37 4.12 4.48 4.80 4.64Share price - high $ 2.75 3.00 4.20 4.50 5.75 5.75 6.60 6.65 5.85 7.55
- low $ 1.75 2.00 2.60 3.00 4.00 4.25 5.00 4.56 4.80 4.95- close at Dec. 31 $ 2.30 2.85 3.25 4.15 4.30 5.50 5.60 5.10 5.05 7.05
A C C O R D F I N A N C I A L C O R P .
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Robert J. BeutelToronto, Ontario
Mr. Beutel holds an M.S.E. from the University
of Michigan and has served on the Board of
Directors since 1990. Mr. Beutel is President of
Oakwest Corporation Limited, an investment
management and holding company. He is also
Chairman of Strongco Inc., a director of
The Nu-Gro Corporation and a trustee of
Firm Capital Mortgage Investment Trust.
Austin C. BeutelToronto, Ontario
Mr. Beutel has been a member of Accord’s Board
of Directors since its establishment 25 years ago.
He holds an M.B.A. (Harvard) and is a Chartered
Financial Analyst with over 45 years of business
experience. Mr. Beutel is a member of the Board’s
Audit and Compensation Committees. Mr. Beutel
also serves as Chairman and a director of The
Equitable Trust Co., as Chairman and a director
of The Nu-Gro Corporation, and as a director
of Astral Media, and O & Y Properties Corp.
John D. LamontOakville, Ontario
Mr. Lamont has served on the Board of Directors
of the Company since 1988 and contributes close
to 50 years of hands-on business experience.
A licensed customs broker, Mr. Lamont is
Chairman & CEO of Lamont Management Inc.
and over the last two decades has been involved
in the acquisition of 17 companies. A member
of the Audit Committee, Mr. Lamont also serves
as a director of other entrepreneurial companies.
Ken HitzigToronto, Ontario
Mr. Hitzig founded Accord 25 years ago and
has seen his initial vision grow into a highly
successful North American factoring company.
In addition to a B.Comm. from McGill University
and a C.A. designation, Mr. Hitzig has over
40 years of experience in the factoring industry.
H. Thomas BeckToronto, Ontario
A member of the Board since Accord began,
Mr. Beck brings with him over 50 years of
corporate experience building and operating a
large manufacturing company. Mr. Beck serves on
the Board’s Compensation Committee. He also
sits on the board of the Toronto Symphony
Orchestra, and is Chairman of the International
Board of Directors of the Weizmann Institute of
Science. Mr. Beck holds a P.Eng. and B.Sc. (Eng.)
from London University.
Ben EvansStamford, Connecticut
Mr. Evans is a Certified Public Accountant
with over 45 years business experience. He has
served as both a partner and a consultant with
Ernst & Young, NYC, specializing in factoring
and finance companies, and in advising creditors
in insolvencies. Mr. Evans is a member of the
Board’s Audit Committee. He also serves on the
boards of Hampton Industries, Inc., Levitz
Home Furnishings, Inc., and Factory Card &
Party Outlet Inc.
Frank D. WhiteMount Royal, Quebec
Mr. White is the owner of several independent
businesses, including TMS Truck Masters, and
has served as a director of Accord since 1992.
With a B.Comm. and a C.A. designation, and
over 45 years of business experience, Mr. White
serves on the Board’s Audit Committee.
Mr. White is also a member of the Board of
Governors of Dynamic Mutual Funds, and a
director of The Nu-Gro Corporation.
C O R P O R A T E G O V E R N A N C E
B O A R D O F D I R E C T O R S
The Board reviews business
recommendations put forth by
management, scrutinizes financial
results, and evaluates compensation
and human resource issues.
The ultimate goal of the Board is to
direct and assist management in
building and enhancing shareholder
value. Business experience, sound
judgment and skill sets provide
solid benefits to the Company.
28
The Board of Directors ("Board") and managementof the Company believe that good corporategovernance is a vital component to the effectiveand efficient operation of the Company. Goodcorporate governance demonstrates the Board’sability independently to direct and evaluate theperformance of the Company’s management aswell as that of the Board members themselves.
The Toronto Stock Exchange ("TSX") hasissued guidelines (the "Guidelines") withrespect to corporate governance, which dealwith matters such as the constitution andindependence of corporate boards and theirfunctions. The Company’s corporate governancepractices generally comply with the Guidelines’fundamental principles outlined by TSX. The Company’s corporate governance practicesare outlined below.
MA N DAT E A N D R E S P O N S I B I L I T I E S O F
T H E B O A R D
The shareholders elect the members of theBoard who in turn are responsible for overseeingall aspects of the business of the Company,including appointing management and ensuringthat the business is managed properly, takinginto account the interests of the shareholdersand other stakeholders, such as employees,
clients, suppliers and the community at large.In addition to the Board’s statutory obligations,the Board is specifically responsible for the following:
(i) adoption of a strategic planning process –the Board participates in strategic and operational planning initiatives as they develop,provides direction to management and monitorsits success in achieving those initiatives;(ii) identification of the principal risks of theCompany’s business and ensuring there aresystems in place to effectively monitor andmanage these risks. In this respect, the Board reviews and approves all credit above$1,000,000, including loans to clients andassumption of credit risk;(iii) appointing, training and monitoring seniormanagement – the Board evaluates seniormanagement on a regular basis, sets objectivesand goals and establishes compensation toattract, retain and motivate skilled and entrepreneurial management;(iv) a communications policy to communicatewith shareholders and other stakeholdersinvolved with the Company – the Company hasa strategy in place to disseminate information,respond to inquiries, issue press releases covering significant business activities and display information on the Company’s web site;
(v) the integrity of the Company’s internalcontrol and management information systems– the Audit Committee oversees the integrity ofthe Company’s internal control and managementinformation systems and reports to the Board.
In addition to those matters which must bylaw be approved by the Board, managementseeks Board approval for any transaction whichis out of the ordinary course of business orcould be considered to be material to the business of the Company. The frequency ofthe meetings of the Board as well as the natureof agenda items change depending upon thestate of the Company’s affairs and in light ofopportunities or risks which the Companyfaces. The Board meets regularly to review thebusiness operations and financial results of theCompany, including regular meetings withmanagement to discuss specific aspects of theoperations of the Company. During 2003 therewere four meetings of the Board of Directors.
C O M P O S I T I O N O F T H E B O A R D
The Board, as shown on page 27, currentlycomprises seven persons. Six directors areconsidered to be unrelated, since their respectiverelationships to the Company are independentof management and free from any interest or
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business which could, or could reasonably beperceived to, materially interfere with or compromise each director’s ability to act witha view to the best interests of the Company,other than interests arising from shareholdings.Mr. Hitzig, President, is an officer of theCompany and is, by definition, a related director.
The Board has considered its size and thenumber of directors and believes that the current size facilitates effective decision-makingand direct and immediate communicationbetween the directors and management. It also permits individual directors to involvethemselves directly in specific matters wheretheir personal inclination or experience willbest assist the Board and management in dealing with specific issues.
Although neither a corporate governance committee nor a nominating committee hasyet been formed, the Board and its committeeshave had, and continue to have, variedresponsibilities. They include nominating newdirectors, assessing the effectiveness of theBoard as a whole and the contribution of individual directors, reviewing the adequacyand form of compensation of directors, andapproving requests of directors to engage outsideadvisors at the expense of the Company.
The Board does not have a formal chair and itis felt that, given the current structure of theBoard, one is not needed. The Board believesthat there are adequate structures and processesin place to facilitate the functioning of theBoard independent from management without
the need for a chair. Should a need develop inthe future, the Board will consider whether aformal or acting chair or a "lead" director is needed.
The Guidelines recommend that corporationsshould provide an orientation and educationprogram for new directors. While no formalprogram exists, new directors meet with management and other directors in order tobecome more familiar with the Company’sbusiness.
C O M M I T T E E S O F T H E B O A R D
The Board discharges its responsibilities directlyand through two committees: an AuditCommittee and a Compensation Committee.
The Audit Committee is composed of Mr. Austin Beutel, Mr. Ben Evans, Mr. John Lamont and Mr. Frank White, each ofwhom is a financially literate, unrelated director.The Audit Committee’s mandate, as formallyset out in its Charter, includes reviewing quarterly and annual financial statements andrelated press releases before they are approvedby the Board; making recommendations to theBoard regarding the appointment of independentauditors and assuring their independence;meeting with the Company’s auditors andmanagement separately at least quarterly;reviewing annual audit findings with the auditors and management; and reviewing therisks faced by the Company, the business environment, the emergence of new opportunitiesand risks, and the steps management has
taken to mitigate exposure to significant risks.During 2003 there were four meetings of theAudit Committee.
The Compensation Committee is composed ofMr. Austin Beutel and Mr. Thomas Beck. TheCompensation Committee’s mandate includesevaluating the performance of the Company’sexecutives and making recommendations forapproval by the Board with respect to theirremuneration. The Compensation Committeereviews compensation paid to management of similarly sized companies to ensure thatremuneration is consistent with industry standards. The Compensation Committee alsoconsiders and makes recommendations withrespect to such matters as incentive plans,employee benefit plans and the structure andgranting of stock options. During 2003 there weretwo meetings of the Compensation Committee.
EX P E C TAT I O N S O F MA N A G E M E N T
The Board expects management to operate theCompany in accordance with approved annualbusiness and strategic plans, to do everythingpossible to enhance shareholder value and tomanage the Company in a prudent manner.Management is expected to provide regularfinancial and operating reports to the Boardand to make the Board aware of all importantissues and major business developments, particularly those that had not been previouslyanticipated. Management is expected to findopportunities for business acquisitions andexpansion, and to make appropriate recommendations to the Board.
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M A N A G E M E N T ’ S
R E P O R T T O T H E S H A R E H O L D E R S
The management of Accord Financial Corp. is responsible for the preparation,presentation and integrity of the consolidated financial statements, financialinformation and discussion and analysis contained in this annual report. This responsibility includes the selection of the accounting principles in additionto judgments and estimates in accordance with Canadian generally acceptedaccounting principles appropriate in the circumstances. The accounting principles which form the basis of the consolidated financial statements and themore significant policies applied are described in note 3 to the consolidated financial statements.
In order to meet its responsibility, management maintains systems of accountingand administrative controls that assure, on a reasonable basis, the reliability of financial information and the orderly and efficient conduct of the Company’sbusiness.
The Board of Directors is responsible for ensuring that management fulfils itsresponsibilities for financial reporting and internal control. The Board is assistedin exercising its responsibilities through the Audit Committee of the Board,which is composed of non-management Directors. The Committee meets periodically with management and the auditors to satisfy itself that management’sresponsibilities are properly discharged, to review the consolidated financialstatements and to recommend approval of the consolidated financial statementsto the Board.
KPMG LLP, independent auditors appointed by the shareholders, express anopinion on the fair presentation of the consolidated financial statements. Theyhave full and unrestricted access to the Audit Committee and management todiscuss matters arising from their audit, which includes a review of accountingrecords and internal controls.
Stuart AdairChief Financial Officer
Toronto, OntarioFebruary 10, 2004
A U D I T O R S ’
R E P O R T T O T H E S H A R E H O L D E R S
We have audited the consolidated balance sheets of Accord Financial Corp. as
at December 31, 2003 and 2002 and the consolidated statements of earnings,
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 Canadian 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,
2003 and 2002 and the results of its operations and its cash flows for the years
then ended in accordance with Canadian generally accepted accounting principles.
Chartered Accountants
Toronto, CanadaFebruary 10, 2004
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31On behalf of the Board
Ken Hitzig, Director
Austin C. Beutel, Director
C O N S O L I D A T E D
B A L A N C E S H E E T S
At December 31
2003 2002
AssetsFactored receivables and loans, net (note 4) $ 68,694,041 $ 64,069,088Cash 2,561,874 3,134,201Income taxes receivable 489,848 —Other assets (note 5) 226,858 276,434Future income taxes, net (note 12) 208,389 1,104,112Capital assets, net (note 6) 1,270,667 1,153,884Goodwill (note 8) 1,246,840 1,517,173
$ 74,698,517 $ 71,254,892
LiabilitiesBank indebtedness (note 9) $ 20,044,842 $ 10,298,137Due to clients 4,309,547 6,782,553Accounts payable and other liabilities 2,147,334 4,341,773Income taxes payable — 797,399Deferred income 915,583 956,113Notes payable (note 10) 2,481,707 2,450,982
29,899,013 25,626,957
Shareholders’ equityCapital stock (note 11) 4,659,910 4,130,560Retained earnings 41,473,847 37,166,036Cumulative translation adjustment (1,334,253) 4,331,339
44,799,504 45,627,935
Commitments and contingencies (notes 4, 14 and 15)
$ 74,698,517 $ 71,254,892
Common shares outstanding 9,649,571 9,513,257
See accompanying notes to consolidated financial statements.
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C O N S O L I D A T E D
S T A T E M E N T S O F E A R N I N G S
C O N S O L I D A T E D
S T A T E M E N T S O F R E T A I N E D E A R N I N G S
Years ended December 31
2003 2002
RevenueFactoring commissions, discounts, interest and other income $ 26,213,614 $ 26,135,135Gain on sale of affiliate (note 7) — 99,900
26,213,614 26,235,035
ExpensesInterest 772,279 756,843General and administrative 14,174,734 14,323,860Credit and loan losses 1,230,799 1,189,567Depreciation 418,148 407,820Provision for settlement of claim (note 14) 712,393 2,338,973
17,308,353 19,017,063
Earnings before income taxes 8,905,261 7,217,972
Income taxes (note 12) 3,066,000 2,569,196
Net earnings $ 5,839,261 $ 4,648,776
Earnings per common share Basic $ 0.61 $ 0.49Diluted $ 0.61 $ 0.49
Weighted average number of shares (note 13) Basic 9,557,480 9,510,757Diluted 9,608,985 9,566,909
Years ended December 31
2003 2002
Retained earnings at January 1 $ 37,166,036 $ 33,848,766Net earnings 5,839,261 4,648,776Dividends paid (1,531,450) (1,331,506)
Retained earnings at December 31 $ 41,473,847 $ 37,166,036
See accompanying notes to consolidated financial statements.
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C O N S O L I D A T E D
S T A T E M E N T S O F C A S H F L O W SYears ended December 31
2003 2002
Cash provided by (used in)Operating activities
Net earnings $ 5,839,261 $ 4,648,776Items not affecting cash
Allowance for losses 43,000 308,000Deferred income (40,530) 19,271Depreciation 418,148 407,820Future income taxes 756,222 (867,490)Gain on sale of affiliate — (99,900)
7,016,101 4,416,477
Change in non-cash operating itemsFactored receivables and loans, gross (4,667,953) (1,856,871)Due to clients (2,473,006) (1,149,629)Income taxes receivable/payable (1,287,247) 2,185,999Other assets 49,576 (108,391)Accounts payable and other liabilities (2,194,439) 2,343,240
(10,573,069) 1,414,348
(3,556,968) 5,830,825
Investing activitiesAdditions to capital assets, net (534,931) (405,677)Proceeds from sale of affiliate — 100,000
(534,931) (305,677)
Financing activitiesBank indebtedness 9,746,705 (1,433,679)Notes payable, net 30,725 332,276Issuance of shares 529,350 39,000Dividends paid (1,531,450) (1,331,506)
8,775,330 (2,393,909)
Effect of change from translation (5,255,758) (330,572)
(Decrease) increase in cash (572,327) 2,800,667
Cash at January 1 3,134,201 333,534
Cash at December 31 $ 2,561,874 $ 3,134,201
Supplemental cash flow informationInterest paid $ 770,701 $ 754,172 Income taxes paid 3,893,919 2,705,859
See accompanying notes to consolidated financial statements.
34
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting years. Actual results could differ from those estimates. Estimates that are particularly judgmental relate to the determination of the allowance for losses relating to factored receivablesand loans. Management believes that the allowance for losses is adequate.
(d) Revenue recognitionFactoring commissions and discounts are recorded as income at the time thereceivables are factored, less a portion thereof relating to future collection expenses. The deferred portion is included in income as the receivables arecollected. Interest charges on loans areincluded in income on an accrual basis.
(e) Allowance for lossesAn allowance for credit and loan lossesis maintained at an amount which, in management's judgment, is sufficient to cover losses on factored receivables,portfolio loans and guarantees undertaken by the Company on its
guarantees it has provided regardless of whether it will have to make any payments under the guarantees. As detailed in notes 3(e) and 4, the Company has guaranteed payment to certain of its clients the majority of their receivables in the event of non-payment by those clients’ customers.
(b) Basis of consolidationThese financial statements consolidate the accounts of the Company and its subsidiaries, namely, in Canada, AccordBusiness Credit Inc. ("ABC") and Montcap Financial Corporation ("MFC"), and, in the United States of America, Accord Financial, Inc. ("AFI"),and its wholly owned subsidiary, J.T.A. Factors, Inc. Inter-company balances and transactions are eliminatedupon consolidation.
(c) Accounting estimatesThe preparation of financial statementsrequires management to make estimatesand assumptions that affect the reportedamount of assets and liabilities and thedisclosure of contingent assets and
1. Description of the businessAccord Financial Corp. (the "Company")is incorporated, by way of Articles ofContinuance dated March 24, 1992, underthe Business Corporations Act (Ontario)and, through its subsidiaries, is engagedin providing asset-based financial services,including factoring, lending, credit investigation, guarantees, and receivablescollection to industrial and commercialenterprises, principally, in Canada and theUnited States of America.
2. Basis of presentationThese financial statements are expressed inCanadian dollars and have been preparedin accordance with Canadian generallyaccepted accounting principles.
3. Significant accounting policies(a) Adoption of new accounting policy
GuaranteesIn February 2003, The Canadian Institute of Chartered Accountants ("CICA") issued Accounting Guideline14, "Disclosure of guarantees". The guideline requires a guarantor to disclose significant information about
N O T E S T O C O N S O L I D A T E D
F I N A N C I A L S TAT E M E N T S YEARS ENDED DECEMBER 31, 2003 AND 2002
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depreciation are removed from the accounts and any gain or loss is recorded in income or expense. The Company continually reviews capital assets to determine that the carrying values have not been impaired.
(g) GoodwillEffective January 1, 2002, the Companyadopted CICA Handbook Section 3062,"Goodwill and Other Intangible Assets".Under the standard, goodwill and otherintangible assets with an indefinite lifeare not amortized, but are tested for impairment annually, or more frequentlyif impairment indicators arise, to ensure that their fair values remain greater than, or equal to, their book values. If the book value exceeds fair value, the excess will be charged to income in the period in which the impairment is determined. Prior to January 1, 2002, goodwill was amortized on a straight-line basis overvarying terms not exceeding 10 years.
(h) Stock option plansEffective January 1, 2002, the Companyprospectively adopted CICA HandbookSection 3870, "Stock-based Compensationand Other Stock-based Payments", which sets out recommendations for
accounting for stock options. As permitted under Section 3870, theCompany has elected not to use the fair value method of accounting for stock options granted to employees and continues to apply the same policy as in prior years. Hence the recommendations have had no effect on the balance sheet or net income of the Company. Any consideration paid upon the exercise of stock options is credited to share capital. When the fair value based method of accountingis not used for stock-based transactionswith employees, pro forma net incomeand pro forma earnings per share mustbe disclosed as if it had been used. This disclosure is set out in note 11.
(i) Income taxesThe Company follows the asset and liability method of accounting for income taxes, whereby future income tax assets and liabilities are recognizedbased on temporary differences betweenthe tax and accounting bases of assets and liabilities as well as losses availableto be carried forward to future years for income tax purposes. Future incometax assets and liabilities are measured using substantively enacted tax rates expected to be in effect when the
clients' behalf. The amount is based upon several considerations including current economic trends, condition of the loan and receivable portfolios and typical industry loss experience.
Credit losses on factored receivables arecharged to the allowance for losses when debtors are known to be bankruptor insolvent. Losses on loans are chargedto the allowance for losses when collectibility becomes questionable andthe underlying collateral is consideredinsufficient to secure the loan balance.
(f) Capital assetsCapital assets are stated at cost. Depreciation is provided annually overthe estimated useful lives of the assets as follows:
Asset Basis Rate
Furniture and Declining balance 20%equipment
Computer Declining balance 30%equipment
Automobiles Declining balance 30%
Leasehold Straight line Over improvements remaining
lease term
Upon retirement or sale of an asset, its cost and related accumulated
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4. Factored receivables and loans
2003 2002
Factored receivables $ 23,705,684 $ 21,857,702
Loans to clients 46,855,357 44,035,38670,561,041 65,893,088
Less allowance for losses 1,867,000 1,824,000
$ 68,694,041 $ 64,069,088
The Company has also entered into agreements with clients whereby theCompany has assumed the credit riskwith respect to the majority of the clients'receivables. At December 31, 2003, thegross amount of these managed receivableswas $124,120,374 (2002 - $134,878,903).Managed receivables and factored receivables and loans which together total$194,681,415 at December 31, 2003 (2002 - $200,771,991) have been considered by management in determiningthe allowance for losses.
The nature of the Company's businessrequires it to fund or assume credit riskon receivables offered to it by its clients.All credit is approved by a staff of creditofficers, with larger amounts beingauthorized by supervisory personnel,management, and, in the case of credit inexcess of $1,000,000, by the Company'sBoard of Directors. The Company monitorsand controls its risks and exposures
temporary differences are expected to reverse and are adjusted for the effectsof changes in tax laws and rates on thedate of substantive enactment. To the extent that the realization of future income tax assets is not considered to be more likely than not, a valuation allowance is provided.
(j) Foreign subsidiariesThe assets and liabilities of the Company's self-sustaining foreign subsidiaries are translated into Canadiandollars at the exchange rate prevailing at the balance sheet date. Revenue andexpenses are translated into Canadian dollars at the average monthly exchangerate then prevailing. Resulting foreign exchange gains and losses are creditedor charged to the cumulative translationadjustment component of shareholders'equity.
(k) Financial assets and liabilitiesFinancial assets and liabilities recordedat cost are short-term in nature and, therefore, the carrying values approximate fair values.
(l) Earnings per shareEarnings per share are calculated usingthe treasury stock method to computethe dilutive effect of stock options.
through financial, credit and legal reportingsystems and, accordingly, believes that ithas in place procedures for evaluating andlimiting the credit risks to which it is subject. Interest rate risks are controlledthrough charging interest on loans, whichvaries with the bank prime rate of interestor LIBOR.
5. Other assets
2003 2002
Prepaid expenses and other assets $ 226,858 $ 256,434
Employee loan – 20,000$ 226,858 $ 276,434
6. Capital assets
2003 2002
Cost $ 4,005,531 $ 3,874,151Less accumulated
depreciation 2,734,864 2,720,267$ 1,270,667 $ 1,153,884
7. Investment in and advances to affiliate
In February 1999, the Company acquireda 50% interest in MFI Export Finance Inc.("MFI"), a newly incorporated company, for$100. Effective January 1, 2002, the Companysold its interest in MFI for $100,000.
At December 31, 2003, $551,338 (2002 -$5,437,328) was owing to the Company
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by MFI. No interest was earned from MFIin 2003 (2002 - $598,494).
8. Goodwill
2003 2002
Goodwill $ 2,131,668 $ 2,591,511Less accumulated
amortization 884,828 1,074,338$ 1,246,840 $ 1,517,173
As detailed in note 3, goodwill is no longeramortized, but tested for impairmentannually, or more frequently, if impairmentindicators arise. During 2003 and 2002, theCompany conducted annual impairmentreviews and determined there was noimpairment to the carrying value of goodwill. The decrease in goodwill balances in 2003 relates to the translationof U.S. dollar goodwill balances intoCanadian dollars at different prevailingyear end exchange rates.
9. Bank indebtednessRevolving lines of credit have been established at a number of banking institutions bearing interest varying with thebank prime rate or LIBOR. These lines ofcredit, which are secured, are collateralizedprimarily by factored receivables and loans toclients. At December 31, 2003, the amountsoutstanding under these lines of credittotalled $20,044,842 (2002 - $10,298,137).
The Company is in compliance with theloan covenants under these lines of creditas at December 31, 2003.
10. Notes payableNotes payable are to individuals or entitiesand consist of advances from management,employees, clients, related individuals andother third parties. Notes are unsecured,due on demand and bear interest at thebank prime rate less one half of one percentper annum. Interest expense on these notesfor 2003 was $102,145 (2002 - $76,858).
11. Capital stock(a) AuthorizedThe authorized capital stock of the Companyconsists of an unlimited number of firstpreferred shares, issuable in series, and anunlimited number of common shares.
The first preferred shares may be issued inone or more series and rank in preferenceto the common shares. Designations, preferences, rights, conditions or prohibitionsrelating to each class of shares may be fixedby the Board of Directors. At December 31,2003 and 2002, there were no preferredshares outstanding.
(b) Issued and outstandingThe common shares issued and outstandingare as follows:
Number Amount
Balance at Jan. 1, 2002 9,503,257 $ 4,091,560
Issued on exercise of stock options 10,000 39,000
Balance at Jan. 1, 2003 9,513,257 4,130,560
Issued on exercise of stock options 136,000 529,350
Other 314 –Balance at Dec. 31, 2003 9,649,571 $ 4,659,910
(c) Share repurchase programOn November 29, 2002, the Companyannounced that it had received approvalto commence a normal course issuer bid(the "Bid") for up to 475,662 of its commonshares. The Bid was to be conducted atprevailing market prices on The TorontoStock Exchange and all shares purchasedunder the Bid were to be cancelled. Nocommon shares were purchased under theBid, which terminated December 1, 2003.
(d) Stock option plansThe Company has established an employeestock option plan. Under the terms of theplan, an aggregate of 1,000,000 commonshares has been reserved for issue uponthe exercise of options granted to keymanagerial employees of the Company andits subsidiaries. According to the terms ofthe plan, options may be earned upon theachievement by the Company of certainminimum earnings.
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As detailed in note 3, the Companyprospectively adopted CICA HandbookSection 3870, "Stock-based Compensationand Other Stock-based Payments", effectiveJanuary 1, 2002. The Company electednot to adopt the fair value method ofaccounting for stock options, as permittedunder Section 3870 and, accordingly, nocompensation expense on the grant of stockoptions has been recorded. The Company'sstock option grants in 2003 and 2002 areset out above. These stock options weregranted to employees at the then marketvalue of the shares on the date of grant.These options vest over a period of threeyears provided certain earnings criteria are met. Section 3870 requires companiesto include only options issued subsequentto December 31, 2001 in the pro formacalculation of net income and earningsper share. Excluding the effect of optionsgranted before the adoption of Section3870, if the Company had adopted thefair value method, the total amount ofcompensation expense in 2003 and 2002for newly granted stock options, estimatedon the date of grant using the Black-Scholesoption-pricing model, would not have amaterial impact on the Company's netearnings and earnings per share on a pro forma basis for the years endedDecember 31, 2003 and 2002.
The following stock options remain outstanding at December 31:
2003
Earned andExercise price Expiry date Outstanding Exercisable
Employee stock option plan:
$ 5.25 April 27, 2004 63,000 63,0004.50 April 27, 2005 117,000 117,0005.10 April 25, 2006 96,000 64,0006.25 July 3, 2007 108,000 36,0005.00 July 2, 2008 60,000 20,0005.35 July 2, 2008 72,000 24,0005.45 July 2, 2009 108,000 —
Non-executive directors’ stock option plan:
$ 5.25 March 4, 2008 21,000 —
645,000 324,000
Weighted average exercise price $ 5.28 $ 5.05
2002
Earned andExercise price Expiry date Outstanding Exercisable
Employee stock option plan:
$ 3.10 April 30, 2003 33,000 33,0005.25 April 27, 2004 69,000 69,0004.50 April 27, 2005 123,000 82,0005.10 April 25, 2006 96,000 32,0006.25 July 3, 2007 108,000 —5.00 July 2, 2008 60,000 —5.35 July 2, 2008 72,000 —
Non-executive directors’ stock option plan:
$ 4.05 October 29, 2003 91,000 91,000
652,000 307,000
Weighted average exercise price $ 4.96 $ 4.45
The Company has also established a non-executive directors' stock option plan.Under the terms of the plan, an aggregateof 500,000 common shares has beenreserved for issue upon the exercise ofoptions granted to non-executive directorsof the Company and its subsidiaries.
Options are granted to purchase commonshares at prices not less than the marketprice of such shares on the grant date.
There were 136,000 stock options exercisedduring 2003 for cash proceeds of $529,350,which were credited to share capital.During 2002, 10,000 stock options wereexercised for cash proceeds of $39,000.
The following table is a summary of stockoptions granted, exercised and cancelledin the previous two years:
2003 2002
Outstanding at Jan. 1 652,000 532,000Granted 129,000 132,000Exercised (136,000) (10,000)Cancelled – (2,000)
Outstanding at Dec. 31 645,000 652,000
Earned and exercisableat Dec. 31 324,000 307,000
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The tax effects of temporary differences thatgive rise to future income tax assets andliabilities at December 31 are as follows:
2003 2002
Future income tax assets:Allowance for losses $ 191,633 $ 179,208Accrued liabilities — 882,667Other 33,092 54,542
224,725 1,116,417
Future income tax liabilities:Capital assets (16,336) (12,305)
Future income taxes, net $ 208,389 $1,104,112
13. Weighted average number of common shares outstanding
Basic earnings per share have been calculated based on the weighted averagenumber of common shares outstanding inthe year without the inclusion of dilutiveeffects. Diluted earnings per share are calculated based on the weighted averagenumber of common shares plus dilutivecommon share equivalents outstanding inthe year, which, in the Company's case,consist entirely of stock options.
The following is a reconciliation of sharesused in the calculation:
2003 2002Basic weighted average
number of shares outstanding 9,557,480 9,510,757
Net effect of dilutive stock options 51,505 56,152
Diluted weighted average number of shares outstanding 9,608,985 9,566,909
For the year ended December 31, 2003,108,000 options (2002 - 249,000) wereexcluded from the calculation of dilutedshares outstanding because they were considered to be anti-dilutive for earningsper share purposes.
14. Contingent liabilities(a) In the normal course of business there
is outstanding litigation, the results of which are not expected to have a material effect upon the Company. In 2003, the Company settled a claim by an account debtor for damages in the amount of US$2,000,000, of whichUS$500,000 was provided for in 2003 and US$1,500,000 in 2002.
(b) At December 31, 2003, the Company is contingently liable with respect to unaccepted letters of credit issued on behalf of clients in the amount of
12. Income taxesThe Company's income tax expense comprises the following components:
2003 2002
Current incometax expense $ 2,309,778 $ 3,436,686
Future income taxexpense (recovery) 756,222 (867,490)
Income tax expense $ 3,066,000 $ 2,569,196
The Company's income tax expense variesfrom the amount that would be computedusing Canadian statutory income tax rates of36.6% (2002 - 38.6%) due to the following:
2003 %
Tax computed at statutory rates $ 3,259,326 36.6
Decrease resulting from:
Lower effective tax rateon income of subsidiaries (163,945) (1.9)
Other (29,381) (0.3)
Income tax expense $ 3,066,000 34.4
2002 %
Tax computed at statutory rates $ 2,786,137 38.6
Decrease resulting from:
Lower effective tax rateon income of subsidiaries (171,708) (2.4)
Other (45,233) (0.6)
Income tax expense $ 2,569,196 35.6
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$2,066,885 (2002 - $1,197,629). This amount has been considered in determining the allowance for losses.
15. CommitmentsThe Company is committed under operatingleases, principally office space leases,which expire between 2004 and 2013.The minimum rentals payable under long-term operating leases, exclusive ofcertain operating costs and property taxesfor which the Company and its subsidiariesare responsible, over the next five yearsand thereafter are as follows:
2004 $ 370,784
2005 365,114
2006 364,456
2007 227,492
2008 71,150
Thereafter 362,865
$ 1,761,861
16. Segmented informationThe Company operates and manages its businesses in one dominant industry segment -providing asset-based financial services to industrial and commercial enterprises, principally, in Canada and the United States of America. There were no significantchanges to capital assets and goodwill during the periods under review.
2003 (in thousands) Canada United States Inter-company Consolidated
Identifiable assets $ 47,315 $ 28,600 $ (1,216) $ 74,699
Revenue $ 19,907 $ 6,640 $ (334) $ 26,213Expenses
Interest 1,011 11 (250) 772General and administration 10,182 4,077 (84) 14,175Credit and loan losses 1,073 158 – 1,231Depreciation 355 63 – 418Provision for settlement of claim – 712 – 712Income taxes 2,421 645 – 3,066
15,042 5,666 (334) 20,374Net earnings $ 4,865 $ 974 $ – $ 5,839
2002 (in thousands) Canada United States Inter-company Consolidated
Identifiable assets $ 43,603 $ 35,998 $ (8,346) $ 71,255
Revenue $ 18,893 $ 7,411 $ (69) $ 26,235Expenses
Interest 785 41 (69) 757General and administration 9,651 4,672 — 14,323Credit and loan losses 838 352 — 1,190Depreciation 276 132 — 408Provision for settlement of claim — 2,339 — 2,339Income taxes 2,669 (100) — 2,569
14,219 7,436 (69) 21,586
Net earnings (loss) $ 4,674 $ (25) $ — $ 4,649
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De
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SUBSIDIARIES
Accord Business Credit Inc.Mark Perna, President
Montcap Financial Corp.Fred Moss, President
Accord Financial, Inc.Tom Henderson, President
AUDITORS
KPMG LLP
LEGAL COUNSEL
Stikeman Elliott
BANKERS
Bank of America
The Bank of Nova Scotia
The Toronto-Dominion Bank
HSBC Bank Canada
BOARD OF DIRECTORS
Ken Hitzig, Toronto, Ontario
Austin C. Beutel, Toronto, Ontario 1, 2
John D. Lamont, Oakville, Ontario 1
Robert J. Beutel, Toronto, Ontario
H. Thomas Beck, Toronto, Ontario 2
Ben Evans, Stamford, Connecticut 1
Frank D. White, Mount Royal, Quebec 1
(1) Member of Audit Committee
(2) Member of Compensation Committee
OFFICERS
Ken Hitzig, President
Gerald S. Levinson, Vice-President
Fred Moss, Vice-President
Mark Perna, Vice-President
Jim Bates, Secretary
Robert J. Beutel, Assistant Secretary
Stuart Adair, Chief Financial Officer
Keeping Business Liquid
77 BLOOR STREET WEST,
TORONTO, ONTARIO,
CANADA M5S 1M2
TEL (416) 961-0007
FAX (416) 961-9443
www.accordfinancial.com
A C C O R D F I N A N C I A L C O R P .
C O R P O R A T E I N F O R M A T I O N
STOCK EXCHANGE LISTING
Toronto Stock Exchange Symbol ACD
REGISTRAR & TRANSFER AGENT
Computershare Trust Company of Canada
ANNUAL MEETING
The Annual Meeting of Shareholders
will be held
Thursday, May13th, 2004
at 4:15 pm
at The Toronto Board of Trade,
First Canadian Place,
Toronto, Ontario
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A C C O R D B U S I N E S S C R E D I T I N C .
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M O N T C A P F I N A N C I A L C O R P .
( 8 0 0 ) 2 31 - 2 977
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A C C O R D F I N A N C I A L , I N C .
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Keeping Business Liquid
