1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: October 11, 1995
AT&T CAPITAL CORPORATION
A Delaware Commission File IRS Employer
Corporation No. 1-11237 No. 22-3211453
44 Whippany Road, Morristown, New Jersey 07962-1983
Telephone Number (201) 397-3000
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Form 8-K AT&T Capital Corporation
October 11, 1995
Item 5. Other Events
On September 20, 1995, AT&T Corp. ("AT&T") announced plans to separate
itself into three publicly traded, global companies. Those restructuring
plans include the disposition of its remaining 86 percent interest in AT&T
Capital Corporation (the "Company") to the general public or another
company. AT&T expects the restructuring, including the sale of its
interest in the Company to be completed by the end of 1996. A complete
copy of AT&T's press release, dated September 20, 1995, is attached hereto
and incorporated herein as Exhibit A.
On October 3, 1995, the Company's Board of Directors (the "Board")
held a special meeting to consider AT&T's announced plans to sell its
remaining interest in the Company to the general public or another company.
At that meeting, the Company's Board authorized management to examine
possible public and private sale alternatives. The Board also created a
Special Committee of the Company's four outside directors to act upon such
matters as may arise in the course of considering alternative ways to
maximize shareowner value and in which there may be a conflict between the
interests of AT&T and those of the Company or its minority shareowners and
to make recommendations thereon to the Company's Board or shareowners.
Additionally, the Board engaged the investment banking firm of Goldman,
Sachs & Co. and the law firm of Sullivan & Cromwell to act as advisors to
the Company.
The Operating Agreement between AT&T and the Company (pursuant to
which the Company serves as AT&T's preferred provider of financing services
and has certain related and other rights and privileges in connection with
the financing of AT&T equipment to AT&T's customers) will remain in place
with respect to AT&T. In addition, consistent with the terms of the
Operating Agreement, if AT&T were to spin-off or sell in a public offering
any of its significant equipment businesses (as contemplated in AT&T's
aforementioned announcement), comparable operating agreements would be put
in place with the spun-off or new companies.
The planned change in the Company's ownership could, as described
below, have certain significant effects on the Company.
Tax Deconsolidation
The Company is currently a member of AT&T's consolidated federal
income tax group. If AT&T's ownership in the Company's common stock drops
below 80%, the Company would cease to be a member of AT&T's consolidated
federal income tax group ("Tax Deconsolidation"). In light of the
announcement made by AT&T, it is likely that AT&T's ownership in the
Company will decrease below 80% by the end of 1996.
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Form 8-K AT&T Capital Corporation
October 11, 1995
Many financings by the Company of products manufactured by AT&T or its
affiliates (the "AT&T Entities") involve the purchase of such
products by the Company and the contemporaneous lease of such products to
third parties. While the Company is a member of AT&T's consolidated
federal income tax group, the payment of taxes associated with certain
transactions which qualify as true leases for tax purposes is generally
deferred until the products are depreciated or sold outside the
consolidated federal income tax group (the amount of such taxes so deferred
is herein referred to as "Gross Profit Tax Deferral"). If AT&T and the
Company are subject to a Tax Deconsolidation, purchases thereafter of such
products by the Company from the AT&T Entities would generate current
taxable income for the AT&T Entities resulting in a liability of the AT&T
Entities to pay federal income taxes on such taxable income.
AT&T and the Company are parties to a Gross Profit Tax Deferral
Interest Free Loan Agreement which provides that AT&T will from time
to time extend interest free loans to the Company equal to the amount of
the Gross Profit Tax Deferral. The Company is obligated to repay interest
free loans at such time as AT&T is required to make an income tax payment
on the deferred income. Upon Tax Deconsolidation, the Company would no
longer receive such loans, which have constituted a competitive advantage
to the Company in financing AT&T products. In addition, the Company would
be required to repay all such outstanding loans upon Tax Deconsolidation.
The aggregate outstanding principal amount of such interest free loans was
$248.9 million at June 30, 1995. The Company has sufficient cash and
credit resources to repay such loans in the event of a Tax Deconsolidation.
If a Tax Deconsolidation had occurred on June 30, 1995, and the Company had
replaced such interest free loans with interest bearing debt, the Company's
net income would thereafter be reduced annually by approximately $8.5
million. This estimate assumes that the Company (i) refinanced the
interest free loans at current market interest rates (which are subject to
continual change) and (ii) no part of such increased borrowing cost was
passed on to customers.
License Agreement
Pursuant to a License Agreement (the "License") with the Company, AT&T
has licensed to the Company and certain of its subsidiaries certain trade
names and service marks, including but not limited to the AT&T Capital
Corporation, AT&T Credit Corporation, AT&T Systems Leasing and AT&T
Automotive Services names. The License provides that if AT&T ceases to own
more than 50% of the voting stock of the Company (as contemplated by AT&T's
September 20, 1995 announcement), AT&T may require (upon one year's notice
and generally at AT&T's expense) the Company (i.e., AT&T Capital
Corporation) to discontinue the use of the "AT&T" name as part of its
corporate name. The Company's subsidiaries may, notwithstanding such event,
continue to use the other AT&T licensed names and service marks pursuant to
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Form 8-K AT&T Capital Corporation
October 11, 1995
the License (e.g, as part of such subsidiaries' corporate names and for
marketing purposes), subject to extensive restrictions on the use thereof
in connection with the issuance of securities and incurrence of
indebtedness.
Intercompany Agreement
AT&T has agreed in the Intercompany Agreement to own, directly or
indirectly, at least 20% of the aggregate number of shares of the Company's
common stock until August 4, 1998. In its September 20, 1995 press
release, AT&T indicated its intent to sell the remainder of its interest in
the Company by the end of 1996, subject to obtaining a modification to the
existing Intercompany Agreement. AT&T has previously advised the Company
that it has no plans to modify the Intercompany Agreement without the
approval of a majority of the Company's independent directors.
Borrowing Performance
The Company believes that because of its relationship with AT&T it has
generally enjoyed borrowing cost savings of approximately 10 basis points.
If the Company ceases to be a subsidiary of AT&T, there is no assurance
that this cost savings would continue. Any actual impact on borrowing costs
would be affected by many factors including the identity of the purchaser
or purchasers of AT&T's interest and whether AT&T's interest is sold in the
public market or to one or more other companies.
Compensation and Benefit Plans
Under the Company's Share Performance Incentive Plan ("SPIP"),
approximately 120 employees are eligible to receive cash awards at the end
of five, 3-year performance periods. The first such period terminates on
June 30, 1996, with each of the other performance periods ending on the
annual anniversary of such date through and including June 30, 2000. If
AT&T reduces its voting interest in the Company below 50%, certain
provisions of the SPIP trigger the possible acceleration of certain of
these cash awards for any pending periods.
More specifically, if a "Disaffiliation Event" (which is defined
generally as a decrease in AT&T's ownership interest in the Company below
50% coupled with the withdrawal by AT&T of the Company's rights under the
License to use the "AT&T" name for certain corporate purposes) were to
occur, the awards under the SPIP (which are generally based on the
performance of the Company's stock price and dividend yield relative to the
interest rate on 3-year treasury notes and the total return on the stock of
a specified peer group of financial services companies) for the performance
periods in process would be accelerated and payable immediately to
participants. While the Company does not know with certainty if and when a
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Form 8-K AT&T Capital Corporation
October 11, 1995
Disaffiliation Event will occur and what the relative performance of the
Company's stock as measured against the peer group would be as of the date
of such Disaffiliation Event, if it is assumed that AT&T's sale of its
interest in the Company occurs by year-end 1996 (as anticipated in the
attached press release) and that only the then pending performance periods
are accelerated as provided in the SPIP, the Company estimates that it
would incur a possible one-time charge to net income between $0 and $15
million.
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Form 8-K AT&T Capital Corporation
October 11, 1995
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
By: Edward Dwyer
Chief Financial Officer
October 11, 1995
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Form 8-K AT&T Capital Corporation
October 11, 1995
EXHIBIT A
AT&T ANNOUNCES STRATEGIC RESTRUCTURING
TO CAPTURE OPPORTUNITIES OF 21ST CENTURY
FOR RELEASE WEDNESDAY, SEPTEMBER 20, 1995
NEW YORK -- AT&T Chairman Robert E. Allen today announced plans for a
strategic restructuring that would separate AT&T into three publicly
traded, global companies.
Allen said the company was taking this bold step to capitalize on the
opportunities in each business' segment of the global information industry
- -- communications services, communications equipment, and transaction-
intensive computing.
Under the plan, AT&T shareowners would hold shares in each company. A
fourth business -- AT&T Capital Corporation -- would be sold.
The AT&T Board of Directors approved pursuing the restructuring plan
at a special meeting this morning. AT&T hopes to complete all transactions
by the end of 1996.
"Changes in customer needs, technology and public policy are radically
transforming our industry," said Allen. "We now see this restructuring as
the next logical turn in AT&T's journey since divestiture. It will make
AT&T's businesses more valuable to our shareowners, even more responsive to
their customers, and better able to focus on the growth opportunities in
their individual markets.
"Under the plan announced today," Allen said, "one of the new
companies would focus on providing the world's best anytime, anywhere'
communications and information services."
Operating under the familiar "AT&T" brand name, the services company
would consist of AT&T's current Communications Services Group, the AT&T
Universal Card Services Corporation, the newly established AT&T Solutions
consulting and systems- integration organization, and AT&T Wireless
Services, formerly McCaw Cellular Communications.
The company also plans to create an AT&T Laboratories unit around the
core of Bell Laboratories people dedicated to research and development in
communications services. In 1994, AT&T's services units had combined
revenues of more than $49 billion, making them the world leader in the
communications services market.
"AT&T's product and systems businesses, along with world-renowned Bell
Laboratories, would constitute a communications systems and technology
company that would immediately be the global leader in its industry," said
Allen.
It would include AT&T's Network Systems Group, Global Business
Communications Systems, Consumer Products, AT&T Paradyne and
Microelectronics. In 1994, these businesses had total sales of
approximately $20 billion. The new company, as yet unnamed, would be a
powerful competitor in the fast-growing communications systems market.
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Form 8-K AT&T Capital Corporation
October 11, 1995
EXHIBIT A
AT&T is considering an Initial Public Offering for approximately 15
percent of the shares of the new equipment company in the first half of
1996.
"Our services and systems businesses are at the intersection of
tremendous change and opportunity," said Allen. "This restructuring
ensures that each can follow the path of greatest opportunity without
worrying about bumping into each other along the way."
The company's computer unit, AT&T Global Information Solutions, would
be launched as an independent company by spinning it off to AT&T
shareowners, following an aggressive turnaround effort also announced
today.
GIS Chairman and CEO Lars Nyberg is taking decisive action to create a
smaller, more focused and swifter business. GIS will continue to develop,
manufacture and market computer platforms for any industry, but will focus
its unique capabilities on the three key industry segments where it has a
leading position -- financial, retail and communications.
"Lars Nyberg is the right leader to get our computer business back on
track," said Allen. "His goal is to be world-class in a few targeted
industry segments and in delivering high-quality computer platforms and
services. I believe that's not only worth doing, but doable. GIS's
customers and employees can count on AT&T's complete support during this
transition."
Nyberg assumed his post in June following a 20-year career at Philips
Electronics NV, where he turned around that company's computer business.
As part of its turnaround effort, GIS will halt manufacture of
personal computers, ceasing distribution through value-added resellers and
retail outlets. It will continue to offer customers personal computers as
part of total solutions through an agreement with an outside supplier that
it expects to announce soon.
GIS will continue to support and service all its current hardware and
software installations and will aggressively market its service
capabilities to all industries. And it will continue to have a strong
commercial relationship with Bell Laboratories.
GIS -- which currently employs about 43,000 people in more than 120
countries -- also announced a major cost-cutting initiative that will lead
to the elimination of approximately 8,500 jobs.
AT&T will incur a one-time, pre-tax charge estimated at approximately
$1.5 billion against third-quarter earnings to cover the costs of the GIS
restructuring, reducing 1995 earnings by $1 billion, or 66 cents per share.
Excluding this charge, AT&T said it continues to target earnings-per-share
growth of at least 10 percent in 1995.
In addition, AT&T plans to sell its remaining interest in AT&T Capital
Corporation to the general public or to another company. AT&T holds in
excess of 80 percent of Capital Corp. shares, having sold a minority
interest to the general public in 1993. Capital Corp. is already one of the
9 AT&T Capital Corporation
Form 8-K
October 11, 1995
EXHIBIT A
largest equipment leasing and financing companies in the United States. In
1994, it had revenues of approximately $1.4 billion and was profitable.
Proceeds from the sale of Capital Corp and from the initial public
offering of the new equipment business will be used to retire current AT&T
debt, giving each of the new businesses balance sheets appropriate to its
industry.
The company intends to adjust each business' capital structure to
ensure that it has the flexibility to raise resources as it needs them.
AT&T recognizes the importance of its relationship with its debt holders.
The company said its ability to satisfy its obligations to its debt holders
will not be impaired as a result of these transactions.
AT&T said that each of the businesses it is establishing will have
everything it needs to meet customers' needs. Each already has seasoned
management and a productive work force. Each has significant global
operations. The service, equipment and computer businesses each has the
sophisticated systems-integration capabilities necessary to provide
complete solutions to its set of customers. And, where it makes sense to
partner in serving a customer's needs, the new businesses could establish
commercial relationships with each other.
"Our first priority throughout this transition period is to ensure
that none of our businesses misses a beat on any customer commitment,"
Allen said.
Financial details on the transactions will be released as they become
available in accordance with securities regulations.
AT&T, which currently has some 303,000 employees, said it is too early
to estimate the exact employment impact of the planned restructuring. On
the one hand, all three new companies will need additional resources to
establish themselves as free-standing, independent companies. However,
each company participates in a hotly competitive market and will continue
to size its operations as efficiently as possible. On balance, it is
likely that the combined new companies will have fewer employees than the
present AT&T.
The company said it will ensure that any employees dislocated by the
restructuring will have access to job opportunities across the total
corporation, as well as to a full range of assistance, ranging from job
counseling to retraining.
Allen, who will continue as chairman and CEO of the new AT&T, will
chair a committee of senior AT&T executives to oversee the restructuring.
The committee members are Hal Burlingame, senior vice president of Human
Resources; Marilyn Laurie, senior vice president of Public Relations and
Employee Communications; Rick Miller, executive vice president and chief
financial officer, and John Zeglis, senior vice president and general
counsel.
Allen also appointed senior officers to lead the transition of each
new company. They are: Alex J. Mandl, CEO of the Communications Services
Group, for the communications services company; Richard A. McGinn, CEO of
the Network Systems Group, for the systems and technology company; along
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Form 8-K
October 11, 1995
EXHIBIT A
with the incumbent CEOs of GIS, Lars Nyberg, and AT&T Capital Corporation,
Thomas C. Wajnert. Allen said that the company's Board of Directors would
name the permanent executive leadership at the appropriate time.
All of these transactions are expected to be tax-free to shareowners.
AT&T intends to seek rulings from the Internal Revenue Service with respect
to the tax-free treatment of the transactions. While AT&T does not
anticipate the need for regulatory, Department of Justice or decree court
approvals, the company did call attention to the complexity of the issues
to be resolved in the months ahead.
For example, immediate disposition of AT&T's final 20 percent interest
in AT&T Capital Corp. would require modifications to certain existing
agreements. While AT&T is confident of its ability to resolve all these
issues, there can be no guarantee that the restructuring plan will be
implemented or that changes in the plan will not be made. The investment
banking firm of Morgan Stanley and the law firm of Wachtell Lipton Rosen &
Katz are serving as advisers to AT&T.