1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1995
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
Commission File Number 1-11237
AT&T CAPITAL CORPORATION
A DELAWARE I.R.S. EMPLOYER
CORPORATION NO. 22-3211453
44 Whippany Road, Morristown, New Jersey 07962-1983
Telephone Number 201-397-3000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
_____ _____
At April 28, 1995, 46,968,810 shares of the registrant's common stock,
par value $.01 per share, were outstanding.
2 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands except per share amounts)
(Unaudited)
For the Three Months
Ended March 31,
1995 1994
______ ______
Revenue:
Finance revenue $ 38,785 $ 27,789
Capital lease revenue 135,432 106,632
Rental revenue on operating
leases (A) 132,961 111,459
Equipment sales 7,932 41,620
Other revenue, net 47,704 38,512
_______ _______
Total Revenue 362,814 326,012
Expenses:
Interest 93,998 60,107
Operating and
administrative 113,481 100,193
Depreciation on operating
leases 85,253 75,001
Cost of equipment
sales 7,052 38,544
Provision for credit
losses 21,055 26,076
_______ _______
Total Expenses 320,839 299,921
_______ _______
Income before income taxes 41,975 26,091
Provision for income taxes 16,892 10,286
________ ________
Net Income $ 25,083 $ 15,805
======== ========
(Continued)
3 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Continued)
(Dollars in Thousands except per share amounts)
(Unaudited)
For the Three Months
Ended March 31,
1995 1994
______ ______
Earnings per common
share and common share
equivalent (Note 2):
Net Income Per Share $ .53 $ .34
======== ========
Weighted average shares
outstanding (thousands): 47,004 46,920
======== ========
(A) Includes $20,680 and $19,638 for the three months ended
March 31, 1995 and 1994, respectively, from AT&T Corp.("AT&T")
and its affiliates.
The accompanying notes are an integral part of these Consolidated
Financial Statements.
4 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1995 1994
__________ ____________
ASSETS:
Cash and cash equivalents $ - $ 54,464
Net investment in finance
receivables 1,615,598 1,452,947
Net investment in capital
leases 5,492,551 5,129,326
Investment in operating
leases, net of accumulated
depreciation of $584,931 in
1995 and $567,398 in 1994 957,387 902,525
Deferred charges and other assets 410,109 482,661
___________ __________
Total Assets $ 8,475,645 $ 8,021,923
=========== ==========
LIABILITIES AND SHAREOWNERS' EQUITY:
Liabilities:
Short-term notes, less
unamortized discounts of
$8,949 in 1995 and $4,619 in
1994 $ 1,763,517 $ 2,176,877
Deferred income taxes 577,066 555,287
Income taxes and other payables 494,821 545,270
Payables to AT&T and affiliates 303,510 356,690
Medium- and long-term debt 4,307,695 3,379,581
Commitments and contingencies
____________ __________
Total Liabilities $ 7,446,609 $ 7,013,705
____________ __________
(Continued)
5 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
(Dollars in Thousands)
(Unaudited)
March 31, December 31,
1995 1994
__________ ____________
Shareowners' Equity (Note 2):
Common stock, one cent par value:
Authorized 100,000,000 shares,
issued and outstanding, 46,968,810
shares in 1995 and 46,962,439 shares
in 1994 $ 470 $ 470
Additional paid-in capital 782,855 782,785
Recourse loans to senior executives (19,292) (19,651)
Foreign currency translation
adjustments (2,160) (2,158)
Retained earnings 267,163 246,772
__________ __________
Total Shareowners' Equity 1,029,036 1,008,218
__________ __________
Total Liabilities and
Shareowners' Equity $ 8,475,645 $ 8,021,923
========== ==========
The accompanying notes are an integral part of these Consolidated
Financial Statements.
6 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For The Three Months
Ended March 31,
1995 1994*
______ ______
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 25,083 $ 15,805
Noncash items included in income:
Depreciation and amortization 98,038 84,255
Deferred taxes 20,809 40,521
Provision for credit losses 21,055 26,076
Decrease in deferred charges and
other assets 114,536 21,128
Decrease in income taxes and
other payables (45,171) (3,794)
Decrease in payables to AT&T and
affiliates (2,881) (11,257)
___________ ___________
Net Cash Provided by Operating Activities 231,469 172,734
___________ ___________
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of fixed assets, net (2,595) (219)
Purchase of businesses and finance asset
portfolios, net of cash acquired (86,895) (160,729)
Financings and lease equipment purchases (1,243,336) (993,407)
Principal collections from customers,
net of amounts included in income 999,553 771,042
___________ ___________
Net Cash Used for Investing Activities $ (333,273) $ (383,313)
___________ ___________
(Continued)
7 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Dollars in Thousands)
(Unaudited)
For The Three Months
Ended March 31,
1995 1994*
______ ______
CASH FLOW FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term notes, net $ (654,816) $ 63,960
Additions to medium- and long-term debt 999,507 466,041
Repayments of medium- and long-term debt (328,270) (248,528)
Increase in payables to AT&T
and affiliates 35,611 2,943
Dividends paid (4,692) (4,217)
_________ _________
Net Cash Provided by Financing
Activities 47,340 280,199
_________ _________
Net Increase (decrease) in Cash and Cash
Equivalents (54,464) 69,620
Cash and Cash Equivalents at Beginning of Period 54,464 -
_________ _________
Cash and Cash Equivalents at End of Period $ - $ 69,620
========= =========
Non-Cash Investing and Financing Activities:
In the first three months of 1995 and 1994, the Company entered into
capital lease obligations of $8,413 and $7,744, respectively, for
equipment that was subleased.
In the first three months of 1995 and 1994, the Company assumed debt of
$431,171 and $106,945, respectively, in conjunction with acquisitions.
* Certain 1994 amounts have been restated to conform to the 1995
presentation.
The accompanying notes are an integral part of these Consolidated
Financial Statements.
8 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared by AT&T Capital Corporation and its subsidiaries ("AT&T
Capital" or the "Company") pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC") and, in the opinion of
management, include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the results of
operations, financial position and cash flows for each period shown. The
results for interim periods are not necessarily indicative of financial
results for the full year. These unaudited consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1994.
2. Shareowners' Equity and Earnings Per Share
The computation of earnings per common share and common share
equivalent is based upon the weighted average number of common shares
outstanding plus common share equivalents arising from the effect of
dilutive stock options using the treasury stock method. Fully dilutive
earnings per common share and common share equivalents are not presented
since dilution is less than 3%.
On April 21,1995 the Company's board of directors declared a first
quarter dividend of $.10 per share. The dividend is payable May 31, 1995
to shareowners of record as of the close of business on May 10, 1995.
3. Acquisitions
On January 4, 1995, the Company acquired the vendor leasing and
finance companies of Banco Central Hispano and certain of its affiliates
("CFH Leasing International") located in the United Kingdom, Germany,
France, Italy, and Benelux (Belgium, the Netherlands and Luxembourg). CFH
Leasing International provides financial services to equipment
manufacturers and vendors. With offices throughout Western Europe, it
serves approximately 4,600 customers and had assets of approximately $540
million at the time of acquisition. The acquisition was accounted for by
the purchase method and the total cash paid (net of cash acquired) was
approximately $74 million.
9 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Net income for the three months ended March 31, 1995, was $25.1
million, an increase of $9.3 million, or 58.7% compared with the first
quarter of 1994. Earnings per share for the first quarter of 1995 were
$.53, a 55.9% increase over the $.34 reported in 1994. Net income of the
Company is highly dependent upon the level of portfolio assets (investment
in finance receivables, capital leases, and operating leases), the related
yields earned on portfolio assets, remarketing activity, and the quality
of the portfolio assets. The increase in net income and earnings per
share for the three months ended March 31, 1995, compared with the same
period of 1994 principally resulted from an increase in average portfolio
assets, strong secondary market and renewal activity and a lower provision
for credit losses.
In January 1995, the Company acquired the vendor leasing and finance
companies of Banco Central Hispano and certain of its affiliates ("CFH
Leasing International") located in the United Kingdom, Germany, France,
Italy and Benelux. CFH Leasing International provides financial services
to equipment manufacturers and vendors. With offices throughout Western
Europe, it serves approximately 4,600 customers and had approximately $540
million in assets at the time of acquisition. This acquisition did not
materially impact net income for the quarter.
RESULTS OF OPERATIONS
Three months ended March 31, 1995
Finance revenue of $38.8 million increased $11.0 million, or 39.6%,
in the first quarter of 1995 compared with the first quarter of 1994,
reflecting a 31.8% increase in the average earning finance receivable
portfolio as well as higher average yields for the first quarter of 1995
compared with the same period in 1994.
Capital lease revenue of $135.4 million increased $28.8 million, or
27.0%, in the quarter ended March 31, 1995, compared with the same quarter
in 1994. This reflects a 26.8% increase in the average earning capital
lease portfolio during the first quarter of 1995 compared with the first
quarter of 1994. The increase in the capital lease portfolio is partially
attributable to the acquisition of CFH Leasing International and a lower
level of assets securitized at the end of 1994 compared with the end of
1993.
Rental revenue on operating leases of $133.0 million for the three
months ended March 31, 1995 increased $21.5 million, or 19.3%, compared
with the three months ended March 31, 1994. Depreciation expense on
operating leases of $85.3 million increased $10.3 million, or 13.7%, for
the three months ended March 31, 1995, compared with the three months
10 FORM 10-Q
ended March 31, 1994. Rental revenue less associated depreciation
("operating lease margin") for the first quarter of 1995 was $47.7
million, or 35.9% of rental revenue, compared with $36.5 million, or 32.7%
of rental revenue for the first quarter 1994. The increased operating
lease margin in 1995 relates primarily to renewed leases in the Company's
small-ticket telecommunications equipment portfolio, as well as higher
margins in the automobile lease portfolio.
Net interest margin (finance revenue, capital lease revenue and
rental revenue, less depreciation on operating leases and interest
expense) of $127.9 million was 6.58% of average portfolio assets for the
first quarter of 1995. This compares with net interest margin of $110.8
million, which was 7.08% of average portfolio assets for the first quarter
of 1994. The decrease in net interest margin for the first quarter of
1995 is due to several factors, including an increase in the Company's
debt to equity ratio (debt to equity was 5.90 and 4.95 at March 31, 1995
and 1994, respectively) and a change in portfolio mix. Additionally, the
Company has experienced some margin compression in certain small-ticket
equipment leasing portfolios due to the frequency and steepness of the
Federal Reserve Board's rate increases in 1994 and 1995. As interest
rates change, product pricing is generally adjusted to reflect the
Company's higher or lower cost of borrowing. However, the pricing in
connection with some small-ticket portfolios tends to lag and may not be
commensurate with the change in the Company's borrowing costs.
Total non-AT&T (i.e., excludes the leasing of AT&T equipment to
customers of AT&T and leasing to AT&T, its affiliates and its employees)
revenue, assets and net loss for the quarter ended March 31, 1995 was
$201.1 million (or 55.4% of total revenue), $5,337.8 million (or 63.0% of
total assets) and $.4 million. This compares with total non-AT&T revenue,
assets and net loss of $183.4 million (or 56.3% of total revenue),
$3,707.1 million (or 54.5% of total assets), and $6.4 million for the
quarter ended March 31, 1994. The Company's non-AT&T net loss is impacted
by start-ups in non-AT&T businesses, particularly as the Company expands
internationally.
Revenue from equipment sales of $ 7.9 million decreased $33.7
million, or 80.9%, for the quarter ended March 31, 1995, compared with the
quarter ended March 31, 1994. Cost of equipment sales of $7.1 million
decreased $31.5 million, or 81.7%, for the quarter ended March 31, 1995,
compared with the quarter ended March 31, 1994. Equipment sales revenue
less associated cost of equipment sold ("equipment sales margin") was $.9
million, or 11.1% of equipment sales revenue for the first quarter of
1995. Equipment sales margin for the first quarter of 1994 was $3.1
million, or 7.4%, of equipment sales revenue. In 1995, the opportunities
for this type of activity internationally as well as in the United States
continued to decrease due to increased competition and to softness in the
computer mainframe market.
Other revenue of $47.7 million grew $9.2 million, or 23.9%, in the
three months ended March 31, 1995, compared with the three months ended
March 31, 1994. The increase is primarily due to higher remarketing gains
on end-of-lease equipment of $4.4 million, increased service fee revenue
of $1.5 million related to increased levels of Small Business
Administration ("SBA") loans sold in the secondary market with servicing
retained, and increased fee income of $1.3 million.
11 FORM 10-Q
The Company's mainframe portfolio and related residual amounts
continue to trend downward in 1995. The Company regularly monitors its
estimates of residual values for all leased equipment, including mainframe
computers, and believes that its residual values are conservatively
stated.
Growth in the Company's portfolio assets, including the acquisition
of CFH Leasing International, caused the average borrowings outstanding to
increase by 31.6%, or $1.4 billion, to $5.9 billion, while the Company's
interest expense increased $33.9 million, or 56.4%, to $94.0 million for
the quarter ended March 31, 1995, compared with the same period in 1994.
The increase in average borrowings caused interest expense to increase by
approximately $19.0 million, of which approximately $7.0 million is
related to additional borrowings brought about by an increase in leverage.
Higher average interest rates for the quarter ended March 31, 1995,
compared with the quarter ended March 31, 1994, caused interest expense to
increase by $14.9 million. The Company's average interest rate on
borrowings was 6.39% for the quarter ended March 31, 1995, compared with
5.38% for the quarter ended March 31, 1994. The Company's increased cost
of borrowing is reflective of the Federal Reserve Board's interest rate
increases during 1994 and 1995. The impact of these rate increases is
beginning to be more evident as the Company replaces maturing debt with
today's higher rate debt. As interest rates change, product pricing is
generally adjusted to reflect the Company's higher or lower cost of
borrowing. However, in certain portfolios, the Company may not be able to
change its product pricing commensurate with, or simultaneous to, changes
in its borrowing costs.
Operating and administrative costs of $113.5 million for the three
months ended March 31, 1995, increased $13.3 million, or 13.3%, compared
with the three months ended March 31, 1994. The acquisition of CFH
Leasing International contributed $2.5 million to the increase. Also
contributing to the increase were higher costs associated with managing a
higher level of portfolio assets. For the first quarter of 1995,
annualized operating and administrative costs to total quarter-end assets
was 5.36% compared with 5.90% for the first quarter of 1994. For the year
ended December 31, 1994, operating and administrative costs to total year-
end assets was 5.33%.
The Company's effective tax rate was 40.2% and 39.4% for the first
quarter of 1995 and 1994, respectively. The slight increase is due to the
utilization of foreign tax net operating losses in 1994. The Company did
not have a similar amount of net operating losses available for
utilization in 1995.
CREDIT QUALITY
The control of credit losses is an important element of the
Company's business. The Company seeks to minimize its credit risk
through diversification of its portfolio assets by customer, customer
type, geographic location and maturity. The Company's financing
activities have been spread across a wide range of equipment segments
(e.g., telecommunications, general, data center, other data processing,
and transportation) and a large number of customers located throughout
the United States and, to a lesser extent, abroad.
12 FORM 10-Q
Portfolio credit performance indicators continued to improve in the
first quarter of 1995. Delinquency and charge-off levels during the
first quarter 1995 were lower than that of the same period in 1994. The
lower level of charge-offs and delinquency for the first quarter of 1995
was reflected in the decrease in the Company's provision for credit
losses of $5.0 million, or 19.3%, to $21.1 million, compared with the
first quarter 1994. For the first three months of 1995, charge-offs to
investment in portfolio assets improved to .64%, compared with .94% for
the first three months of 1994. The allowance for credit losses was
2.35% of the Company's investment in portfolio assets at March 31, 1995,
compared with 2.30% at December 31, 1994, and 2.65% at March 31, 1994.
At March 31, 1995, the allowance for credit losses was $194.0 million,
compared with $176.4 million at December 31, 1994, and $173.6 million at
March 31, 1994. Nonaccrual assets at March 31, 1995 totalled $124.1
million, or 1.50% of investment in portfolio assets, compared with $120.5
million, or 1.57% of investment in portfolio assets at December 31, 1994
and $144.4 million, or 2.20% of investment in portfolio assets at
March 31, 1994.
The Company maintains an allowance for credit losses at an amount
based on a review of historical loss experience, a detailed analysis of
delinquencies and problem portfolio assets, and an assessment of probable
losses in the portfolio as a whole given its diversification. Management
also takes into consideration the potential impact of existing and
anticipated economic conditions.
FINANCIAL CONDITION
Portfolio assets were $8.1 billion, an increase of $580.7 million,
or 7.8%, at March 31, 1995 compared with December 31, 1994. As a result
of the acquisition of CFH Leasing International, the Company's
international assets (excluding cross border transactions) at March 31,
1995 grew to 17.4% of total assets, up from 10.9% at December 31, 1994.
The net investment in finance receivables increased by $162.7
million, or 11.2% to $1.6 billion at March 31, 1995 compared with December
31, 1994 primarily due to the acquisition of CFH Leasing International and
to increased loans in the Company's telecommunications systems portfolio
and small business lending portfolio.
The net investment in capital leases increased by $363.2 million, or
7.1%, at March 31, 1995 to $5.5 billion compared with December 31, 1994.
This increase was primarily due to the acquisition of CFH Leasing
International, and to growth in the Company's small-ticket equipment
portfolio.
The net investment in operating leases of $957.4 million at March 31,
1995 increased by $54.9 million, or 6.1%, compared with December 31, 1994.
The increase is primarily due to growth in the Company's automobile lease
portfolio.
13 FORM 10-Q
At March 31, 1995, the total portfolio assets managed by the Company
on behalf of others was $2.5 billion compared with $2.7 billion at
December 31, 1994. The decrease in portfolio assets managed is
attributable to lower securitized assets managed due to normal run-off of
the receivable stream. Of the total assets managed by the Company on
behalf of others, 58.4% at March 31, 1995 and 55.9% at December 31, 1994,
were assets managed on behalf of AT&T and its affiliates.
LIQUIDITY AND CAPITAL RESOURCES
The Company generates a substantial portion of its funds from lease
and rental receipts, but is also highly dependent upon external financing,
including the issuance of commercial paper and medium-and long-term notes
in public markets and, to a lesser extent, privately placed asset-backed
financings (or securitizations). Standard & Poor's Corporation, Moody's
Investors Service, Inc., and Duff & Phelps Credit Rating Co. have rated
the Company's senior medium- and long-term debt A, A3 and A, respectively,
and have rated the Company's commercial paper A-1, P-1 and D-1,
respectively.
Funds required to support the Company's operations during the first
three months of 1995 were derived internally primarily from principal
collections and interest collections from customers (which include
realization of cash from residual values through remarketing activities),
and externally from issuances of commercial paper and medium-term debt.
In the first three months of 1995, the Company issued commercial
paper of $6.6 billion and made commercial paper repayments of $7.2
billion, and issued medium- and long-term debt of $1.1 billion and repaid
medium- and long-term debt of $284.9 million. In the first three months
of 1994, the Company issued commercial paper of $5.8 billion, and made
commercial paper repayments of $5.7 billion and issued medium- and long-
term debt of $466.0 million and made medium- and long-term debt repayments
of $248.5 million.
During the three month periods ended March 31, 1995 and March 31,
1994, principal collections from customers of $1.0 billion and $0.8
billion, respectively, were received. These receipts were primarily used
for finance receivables and lease equipment purchases (including purchases
of finance asset portfolios and businesses) of $1.3 billion and $1.2
billion in the first three months of 1995 and 1994, respectively.
In conjunction with acquisitions, the Company assumed approximately
$431 million and $107 million of debt, in the first quarter of 1995 and
1994, respectively. Approximately $412 million of such assumed debt was
outstanding at March 31, 1995.
The Company has paid quarterly dividends every quarter since the
fourth quarter of 1993, its first full quarter of operations after its
initial public offering. On February 28, 1995 the Company paid a dividend
14 FORM 10-Q
of ten cents per share to shareowners of record as of February 10, 1995.
In addition, on April 21, 1995, the Company's board of directors declared
a quarterly dividend of ten cents per share. The dividend will be payable
on May 31, 1995 to shareowners of record by close of business on May 10,
1995.
In July 1994 the Company registered with the SEC $2.5 billion of debt
securities (including medium-term notes) and warrants to purchase debt
securities, currency warrants, index warrants and interest rate warrants.
At March 31, 1995 $1.7 billion of medium-term debt was outstanding under
such debt registrations.
Also in July 1994, the Company reestablished credit facilities of
$2.0 billion. These facilities, negotiated with a consortium of 32
lending institutions, support the commercial paper issued by the Company.
At March 31, 1995, these facilities were unused. The Company also has
available local lines of credit to meet local funding requirements in Hong
Kong, Canada, the United Kingdom, Australia, and Mexico of approximately
$667 million, of which approximately $234 million was unused at March 31,
1995.
The Company has, from time to time, borrowed funds directly from
AT&T, including on an interest-free basis pursuant to tax agreements.
These interest-free loans amounted to $245.2 million at March 31, 1995.
These sources of funds would not be available if the Company were to cease
being a member of AT&T's consolidated group for federal income tax
purposes.
The Company anticipates obtaining necessary external financing
through issuances of commercial paper and medium-term notes, available
lines of credit for certain foreign operations and privately placed
asset-backed financings (or securitizations).
Future financing is contemplated to be arranged as necessary to meet
the Company's capital and other requirements with the timing of issue,
principal amount and form depending on the Company's needs and prevailing
market and general economic conditions.
The Company considers its current financial resources, together with
the debt facilities referred to above and estimated future cash flows, to
be adequate to fund the Company's future growth and operating
requirements.
ASSET AND LIABILITY MANAGEMENT
AT&T Capital's asset and liability management ("ALM") process takes
a coordinated approach to the management of interest rate and foreign
currency risks. The Company's overall strategy is to match the average
maturities of its borrowings with the average cash flows of its portfolio
assets, as well as the currency denominations of its borrowings with
those of its portfolio assets, in a manner intended to reduce the
Company's interest rate and foreign currency exposure. The following
discussion describes certain key elements of this process, including AT&T
Capital's use of derivatives to manage risk.
15 FORM 10-Q
Match Funding
AT&T Capital generally matches the duration and maturity structure
of its liabilities to that of its portfolio assets. The Company
routinely projects the expected future cash flows related to its current
portfolio assets. Based on these projections, the Company is generally
able to match the maturity and duration of its debt with that of its
assets. The cash flow projections incorporate assumptions about customer
behavior such as prepayments, refinancings and charge-offs. The
assumptions are based on historical experience with the Company's
individual markets and customers and are continually monitored and
updated as markets and customer behaviors change, to reflect current
customer preferences, competitive market conditions, portfolio growth
rates and portfolio mix.
Interest Rate Risk and Currency Exchange Risk
AT&T Capital actively manages interest rate risk to protect the
Company's margins on existing transactions. Interest rate risk is the
risk of earnings volatility attributable to changes in interest rates.
The Company routinely analyzes its portfolio assets and strives to match
floating rate assets with floating rate debt and fixed rate assets with
fixed rate debt. The Company generally achieves a matched position
through issuances of commercial paper and medium-term notes, as well as
through the use of interest rate swaps. The Company does not speculate
on interest rates, but rather seeks to mitigate the possible impact of
interest rate fluctuations. This is a continual process due to
prepayments, refinancings, non-performing loans, as well as other
portfolio dynamics, and therefore, interest rate risk can be
significantly limited but never fully eliminated. Additionally, the
Company enters into foreign exchange contracts and participates in the
currency swap market to mitigate its exposure to assets and liabilities
denominated in foreign currencies and to meet local funding requirements.
The Company expects to enter into more foreign exchange contracts and
currency swaps in 1995 primarily as a result of the January 1995
acquisition of CFH Leasing International, described above.
Using Derivatives to Manage Interest Rate and Currency Risk
AT&T Capital uses derivatives to match fund its portfolio and
thereby manage interest rate and currency risk. Derivatives can be
customized in terms of duration and interest rate basis (i.e., fixed or
floating). Derivatives used by the Company are operationally efficient
to arrange and maintain. Whether AT&T Capital issues medium-term notes,
on which it pays a fixed rate, or issues floating rate debt and utilizes
interest rate swaps, on which it generally pays a fixed rate and receives
a floating rate, the Company's interest rate risk position can be equally
well managed. However, it is the continuing interplay between liquidity,
capital, portfolio characteristics, and economic and market conditions
which determines the changing mix of medium-term notes, commercial paper
and swaps (or other derivatives) used to manage interest rate risk.
16 FORM 10-Q
At March 31, 1995 and December 31, 1994 the total notional amount of
the Company's interest rate and currency swaps was $2.9 billion. The
notional amount of the Company's foreign currency forward exchange
contracts was $469.8 million at March 31, 1995, compared with $318.1
million at December 31, 1994. The notional amount of derivative
contracts does not represent direct credit exposure. Rather, credit
exposure may be defined as the market value of the derivative contract
and the ability of the counterparty to perform its payment obligations
under the agreement. The majority of the Company's interest rate swaps
require AT&T Capital to pay a fixed rate and receive a floating rate.
Therefore, this risk is reduced in a declining interest rate environment
as the Company is generally in a payable position, and is increased in a
rising interest rate environment as the Company is generally in a
receivable position. The Company seeks to control the credit risk of its
interest rate swap agreements through credit approvals, exposure limits
and monitoring procedures. All swap agreements are with major money
center banks and intermediaries with an investment grade rating by
nationally recognized statistical rating organizations, with the majority
of the Company's counterparties being rated "AA" or better.
There were no past due amounts or reserves for credit losses at
March 31, 1995, related to derivative transactions, nor has the Company
ever experienced any charge-offs related to derivative transactions.
Debt to Equity
Total debt to equity at March 31, 1995, of 5.90 increased from 5.51
at December 31, 1994. This increase was primarily due to the January
1995 acquisition of CFH Leasing International.
RECENT PRONOUNCEMENTS
The Company adopted Statements of Financial Accounting Standards
("SFAS") No. 114 ("Accounting by Creditors for Impairment of a Loan") and
No. 118 ("Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures") in the first quarter of 1995. These
standards require that impaired loans be measured based on the present
value of expected cash flows, discounted at the loan's effective interest
rate or, the loans observable market price or, the fair value of the
collateral if the loan is collateral dependent, as well as certain related
disclosures. The adoptions did not have a material effect on the
consolidated financial statements of the Company.
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of". This statement establishes the
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held
and used and for long-lived assets and certain identifiable intangibles to
be disposed of. This standard is effective for financial statements for
fiscal years beginning after December 15, 1995, which for the Company
would be 1996. Based upon management's review, the adoption of SFAS No.
121 is not expected to have a material impact on the Company's financial
position and results of operations.
17 FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of the registrant was held
on April 21, 1995.
(b) Holders of common shares voted at this meeting on the
following matters, which were set forth in full in the
registrant's proxy statement dated March 20, 1995:
(i) Election of Directors:
Nominee For Withheld
__________ ________
Thomas C. Wajnert 45,512,353 57,078
John P. Clancey 45,512,053 57,378
James P. Kelly 45,512,153 57,278
Gerald M. Lowrie 45,510,144 59,287
William B. Marx, Jr. 45,509,336 60,095
Richard A. McGinn 45,509,366 60,065
Joseph J. Melone 45,512,203 57,228
Richard W. Miller 45,512,253 57,178
S. Lawrence Prendergast 45,512,473 56,958
Brooks Walker, Jr. 45,511,853 57,578
Marilyn J. Wasser 45,509,366 60,065
For Against Abstain
__________ _______ _______
(ii) Appointment of Auditors 45,525,585 15,097 28,749
Appointment of the firm
of Coopers & Lybrand as the
independent auditors to
examine the Company's
accounts for 1995.
For Against Abstain
__________ _______ _______
(iii) The approval of the 44,914,850 443,429 211,152
Company's 1995 Senior
Executive Annual Incentive
Plan.
18 FORM 10-Q
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
11 Computation of Primary and Fully Diluted Earnings Per
Share
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) Reports on Form 8-K:
Report on Form 8-K dated January 3, 1995 was filed pursuant
to Item 5 (Other Events).
19 FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AT&T CAPITAL CORPORATION
May 10, 1995
Ramon Oliu, Jr.
Controller
(Chief Accounting Officer)
20 FORM 10-Q
EXHIBIT INDEX
EXHIBITS
Exhibit Description
Number
______
11 Computation of Primary and Fully Diluted Earnings Per Share
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule