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, 1997
( ) 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
----- -----
No voting stock of this registrant is held by any non-affiliates of the
registrant. At April 30, 1997, 90,337,379 shares of the registrant's Common
Stock, par value $.01 per share, were issued and outstanding.
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
(Unaudited)
For the Three Months
Ended March 31,
1997 1996*
------- -------
Revenues:
Finance revenue $ 54,309 $ 47,252
Capital lease revenue 90,747 162,370
Rental revenue on operating
leases (A) 196,723 158,079
Revenue from securitizations
and loan sales 13,032 8,191
Equipment sales 8,176 18,706
Other revenue, net 57,943 44,676
------- -------
Total Revenues 420,930 439,274
------- -------
Expenses:
Interest 105,318 113,587
Operating and administrative 136,284 122,368
Depreciation on operating leases 131,976 102,391
Cost of equipment sales 7,228 16,041
Provision for credit losses 23,279 25,304
------- -------
Total Expenses 404,085 379,691
------- -------
Distributions on Company-obligated
preferred securities of subsidiary 4,530 -
------- -------
Income before income taxes 12,315 59,583
Provision for income taxes 4,887 22,539
------- -------
Net Income $ 7,428 $ 37,044
======= =======
(A) Includes $21,868 and $23,216 for the three months ended
March 31, 1997 and 1996, respectively, from AT&T Corp.("AT&T"),
Lucent Technologies Inc. ("Lucent") and NCR Corporation
("NCR")(herein, "AT&T/Lucent/NCR" or the "Former Affiliates").
*Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-1-
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March 31, December 31,
1997 1996
(Unaudited)
---------- ----------
ASSETS:
Cash and cash equivalents $ 22,431 $ -
Net investment in finance receivables 2,124,555 2,135,250
Net investment in capital leases 3,467,179 3,648,731
Net investment in operating
leases, net of accumulated
depreciation of $824,555 in
1997 and $777,905 in 1996 1,407,321 1,403,470
Deferred charges and other assets 832,314 788,935
Deferred income taxes 173,510 116,126
--------- ---------
Total Assets $8,027,310 $8,092,512
========= =========
LIABILITIES, PREFERRED SECURITIES AND SHAREOWNERS' EQUITY:
Liabilities:
Short-term notes, less unamortized
discounts of $2,741 in 1997 and
$3,112 in 1996 $1,792,838 $1,867,247
Income taxes and other payables 485,882 580,575
Payables to affiliates and
Former Affiliates 36,762 139,706
Medium and long-term debt 4,797,356 4,597,677
--------- ---------
Total Liabilities 7,112,838 7,185,205
--------- ---------
Commitments and contingencies
Preferred Securities:
Company-obligated preferred
securities of subsidiary 200,000 200,000
--------- ---------
Shareowners' Equity:
Common stock, one cent par value:
Authorized 150,000,000 shares,
issued and outstanding, 90,337,339
shares in 1997 and 90,198,571 shares
in 1996 903 902
Additional paid-in capital 637,180 633,676
Recourse loans to senior executives (19,059) (15,697)
Foreign currency translation
adjustments (3,909) (3,502)
Retained earnings 99,357 91,928
--------- ---------
Total Shareowners' Equity 714,472 707,307
--------- ---------
Total Liabilities, Preferred Securities
and Shareowners' Equity $8,027,310 $8,092,512
========= =========
-2-
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For The Three Months
Ended March 31,
1997 1996*
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 7,428 $ 37,044
Noncash items included in income:
Depreciation and amortization 127,801 103,868
Deferred taxes (49,888) (5,825)
Provision for credit losses 23,279 25,304
Revenue from securitizations and loan sales (13,032) (8,191)
Increase (decrease) in deferred charges and
other assets (13,580) 15,693
Decrease in income taxes and other payables (88,765) (20,439)
Increase (decrease) in payables to
affiliates and Former Affiliates (27,033) 953
--------- ---------
Net Cash Provided (used) by Operating Activities (33,790) 148,407
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Financings and lease equipment purchases (1,423,801) (1,382,125)
Principal collections from customers,
net of amounts included in income 925,204 984,602
Cash proceeds from securitizations and
loan sales 421,667 126,189
--------- ---------
Net Cash Used for Investing Activities $ (76,930) $(271,334)
--------- ---------
(Continued)
-3-
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Dollars in Thousands)
(Unaudited)
For The Three Months
Ended March 31,
1997 1996*
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term notes, net $ (74,409) $(518,914)
Additions to medium and long-term debt 1,247,973 953,423
Repayments of medium and long-term debt (1,040,413) (278,099)
---------- --------
Decrease in payables to affiliates
and Former Affiliates - (18,246)
Dividends paid - (5,162)
---------- --------
Net Cash (used) Provided by Financing
Activities 133,151 133,002
---------- --------
Net Increase (decrease) in Cash and Cash
Equivalents 22,431 10,075
Cash and Cash Equivalents at Beginning of Period - 3,961
---------- --------
Cash and Cash Equivalents at End of Period $ 22,431 $ 14,036
========== =========
Non-Cash Investing and Financing Activities:
In the first three months of 1997 and 1996, the Company entered into capital
lease obligations of $1,693 and $2,431, respectively, for equipment that was
subleased.
* Certain 1996 amounts have been restated to conform to the 1997
presentation.
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-4-
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO THE 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, reflect 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, 1996.
2. Recent Pronouncements
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation". This statement establishes financial accounting and reporting
standards for stock-based employee compensation plans. It allows companies to
choose either 1) a fair value method of valuing stock-based compensation plans
which will affect reported net income, or 2) to continue to follow the existing
accounting rules for stock option accounting but disclose what the impacts would
have been had the fair value method been adopted. The Company adopted the
disclosure alternative which requires annual disclosure of the pro forma net
income and earnings per share amounts assuming the fair value method was adopted
on January 1, 1995. As a result, the adoption of this standard did not have any
impact on the Company's consolidated financial statements.
In June 1996, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". This statement requires that liabilities and
derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value, if practical. It also
requires that servicing assets and other retained interests in the transferred
assets be measured by allocating the previous carrying amount between the assets
sold, if any, and retained interests, if any, based on their relative fair
values at the date of the transfer. This statement was effective for transfers
and servicing of financial assets and extinguishment of liabilities occurring
after December 31, 1996 and application is prospective. In December 1996, SFAS
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125" was issued. Management does not expect the adoption of either standard
to have a material impact on the Company's consolidated financial statements.
-5-
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure". SFAS No. 129, which is applicable to all
entities, requires disclosure of information about the liquidation preference of
preferred stock, redeemable stock, and certain other disclosures. SFAS No. 129
is effective for financial statements for periods ending after December 15, 1997
which for the Company will be 1997. Management does not expect that the adoption
of SFAS No. 129 will have any impact on the consolidated financial statements.
-6-
3. Subsidiary debentures
The table below shows summarized consolidated financial information for
AT&T Leasing Services, Inc. and AT&T Capital Services, both wholly owned
subsidiaries of the Company. The Company has guaranteed, on a subordinated
basis, payment in respect to debentures issued by these subsidiaries.
AT&T Capital Leasing Services, Inc. For the three months ended
- ---------------------------------- --------------------------
March 31,
-----------
(unaudited)
1997 1996
---- ----
Total revenues $ 36,120 $ 59,671
Interest expense 10,494 18,288
Operating and administrative expenses 20,617 20,796
Provision for credit losses 14,581 10,567
Income before taxes (10,315) 9,468
Net income (6,176) 5,700
March 31, December 31,
1997 1996
-------- ------------
(unaudited)
Total assets 654,782 628,943
Total debt 564,874 507,180
Total liabilities 619,758 597,203
Total shareowner's equity $ 35,024 $ 31,742
AT&T Capital Services Corporation For the three months ended
- --------------------------------- --------------------------
March 31,
-----------
(unaudited)
1997 1996
---- ----
Total revenues $ 29,845 $ 23,820
Interest expense 1,618 1,088
Operating and administrative expenses 12,505 9,325
Provision for credit losses 337 -
Income before taxes 646 3,394
Net income 353 2,022
March 31, December 31,
1997 1996
-------- ------------
(unaudited)
Total assets 156,940 161,232
Total debt 115,169 116,545
Total liabilities 141,432 145,565
Total shareowner's equity $ 15,508 $ 15,667
-7-
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD LOOKING STATEMENTS
When included in this Quarterly Report on Form 10-Q, the words, "will",
"should", "expects", "intends", "anticipates", "estimates" and similar
expressions, among others, identify forward looking statements for purposes of
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"). Such statements, which include statements contained in this
Item 2, inherently are subject to a variety of risks and uncertainties that
could cause actual results to differ materially from those set forth in such
statements. Such risks, many of which are beyond the control of AT&T Capital
Corporation (the "Company"), and uncertainties include, among others, those
described under "Risk Factors" included in Item 7 of the Company's 1996 Annual
Report on Form 10-K. These forward looking statements are made only as of the
date of this Quarterly Report on Form 10-Q. The Company expressly disclaims any
obligation or undertaking to release any update or revision to any forward
looking statement contained herein to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based.
RESULTS OF OPERATIONS
Three months ended March 31, 1997 vs. March 31, 1996
Unless otherwise indicated, all period to period comparisons represent
activity or balances at or for the three months ended March 31, 1997 versus
March 31, 1996.
Net income of $7.4 million decreased $29.6 million, or 79.9%. First quarter
1997 net income was negatively impacted by a lower level of capital lease
revenue as a result of the recent increased level of securitization activity,
higher relative interest associated with a greater proportion of debt relative
to on-balance sheet assets and distributions on Preferred Securities (as defined
herein). These factors, which resulted from the Company's merger in the fourth
quarter of 1996 (the "Merger"), reduced net income by approximately $35-$40
million. Somewhat offsetting these factors were increases in revenue from
securitizations and loan sales, other revenue and operating lease margin.
In light of the Company's significant securitization during the fourth
quarter of 1996, coupled with the Company's post-Merger capital structure,
management expects 1997 quarterly income results to continue to be less than the
comparable 1996 periods. However, management expects 1997 earnings performance
to improve relative to first quarter results as the Company realizes some of the
deferred positive effects of its recent securitizations including increased
residual realization.
-8-
Finance revenue of $54.3 million increased $7.1 million, or 14.9%. An
18.5% increase in the average net finance receivables accounted for an $8.8
million increase, while the decrease in the average yield to 10.07% from 10.38%
offset this increase by $1.7 million. Increases in the finance receivables
portfolio were generated primarily through greater volume of large-ticket loans
made in the structured and specialty finance portfolios and increased consumer
loans in the Asia/Pacific Region. The decline in yield was experienced by many
of the Company's businesses and relates to increased competitive pressures. In
addition, a few unusually large nonearning accounts are also depressing the
overall yield. See Credit Quality for discussion of these accounts.
Capital lease revenue of $90.7 million decreased $71.6 million, or 44.1%,
due primarily to a 42.7% decrease in the average net capital lease portfolio.
The decrease in the average portfolio was primarily due to the $3.0 billion
securitization in the fourth quarter of 1996 involving primarily capital leases.
The overall yield on capital leases decreased from 10.4% to 9.89%. The reduction
in yields occurred for several reasons including the effects of securitizing
higher yielding assets, run-off of relatively higher yielding deals and pricing
pressures. Securitizations generally include small-ticket products that usually
have higher yields and margin. Therefore, as securitizations occur, the mix of
these higher yielding products is reduced, decreasing yields. To clarify, higher
yielding doesn't necessarily mean more profitable, as higher credit provision
and servicing costs are commonly associated with these assets as well.
Rental revenue on operating leases of $196.7 million increased $38.6
million, or 24.4%. Depreciation expense on operating leases of $132.0 million
increased $29.6 million, or 28.9%. Rental revenue less associated depreciation
("operating lease margin") was $64.7 million, or 32.9% of rental revenue,
compared with $55.7 million, or 35.2% of rental revenue for the comparable prior
year period. The decreased operating lease margin relates primarily to increased
depreciation on certain telecommunications equipment in lease renewal coupled
with a slightly lower utilization rate of testing and diagnostic equipment.
Net interest margin (finance revenue, capital lease revenue and rental
revenue, less depreciation on operating leases and interest expense "margin")
was $104.5 million or 5.79% of average net portfolio assets. This compares with
a margin of $151.7 million or 6.57% for the same period last year. The reduced
margin of $47.2 million is due to lower portfolio revenue, higher interest
expense associated with the Company's post-Merger capitalization structure,
somewhat offset by a lower cost of debt. Average net portfolio assets of $7.2
billion were $1.9 billion lower than the comparative prior year quarter
generating lower portfolio revenue of $55.5 million. The Company's post-Merger
capitalization structure includes higher debt relative to on-balance sheet
assets. The interest expense associated with carrying such higher relative debt
reduced the first quarter's margin by approximately $21.0 million. The lower
level of portfolio assets reduced the level of debt required and associated
interest expense by $23.8 million. A lower average cost of debt of 6.09% versus
6.52% contributed $5.5 million to margin.
-9-
Revenue from sales of equipment of $8.2 million decreased 56.3% from $18.7
million. Similarly, cost of equipment sales of $7.2 million decreased from $16.0
million. Equipment sales revenue less associated cost of equipment sales
("equipment sales margin") was $0.9 million, or 11.6% of equipment sales revenue
this quarter and $2.7 million, or 14.2% in the prior year quarter. The drop in
both equipment sales revenue and margin highlights the unusually strong results
attained in the previous year's first quarter. During 1996, equipment sales and
margin were bolstered by strong demand for mainframes and emerging technology
equipment. Volume and profitability from equipment sales tend to follow customer
behavior and are generally difficult to predict.
Securitization and loan sale revenue increased $5.8 million to $13.0
million. Higher securitization revenue accounted for $4.2 million of the
increase, with the remaining increase of $1.6 million attributable to higher
loan sales revenue. Higher securitization revenue was generated through the sale
of $349.2 million of assets at the end of the first quarter of 1997 compared
with a 1996 first quarter securitization of $75.0 million.
Other revenue of $57.9 million increased $12.3 million, or 27.1%.
Reflecting a higher managed asset base, service fee revenue more than doubled,
up from $4.5 million to $9.7 million in 1997. Gain on asset sales increased $5.4
million to $26.1 million primarily as a result of strong activity in
telecommunications equipment. Fee income of $5.0 million also doubled as
compared to prior year due to providing software development services.
Average borrowings outstanding decreased slightly to $6.9 billion from
$7.0 billion. As discussed above, the recapitalization of the Company and the
related higher debt balance relative to the asset base increased interest
expense by approximately $21.0 million. Despite the higher leverage, interest
expense of $105.3 million decreased 7.3%, or $8.3 million. A lower average cost
of debt of 6.09%, compared with 6.52% in 1996, reduced interest expense by $7.5
million. The Company issued medium and long term debt in the first quarter at an
average rate of 6.46%, compared to debt maturing at an average rate of 7.04%.
The accompanying consolidated statement of income for the current period
includes $4.5 million of distributions paid on trust originated,
Company-obligated preferred securities of subsidiary. These distributions relate
to $200 million of preferred securities (the "Preferred Securities") issued in
connection with the recapitalization associated with the Merger.
Operating and administrative ("O&A") expenses of $136.3 million increased
$13.9 million, or 11.4%. Higher expenses are predominantly due to managing a
higher level of owned and managed assets. As a percentage of owned and managed
assets, first quarter annualized O&A expenses were 4.21% and 4.14% at March 31,
1997 and 1996, respectively. The slight increase in the aforesaid O&A ratio is
mainly due to continuing business expansion activities and systems investments.
The Company's goal is to reduce this ratio to 3.5% in a few of years. (Please
refer to the first paragraph of Management's Discussion and Analysis of
Financial Condition and Results of Operations, "Forward Looking Statements" for
a discussion of the risks inherent in forward looking statements.)
-10-
See "Credit Quality" below for a discussion of the provision for credit
losses.
The effective income tax rates were 39.7% and 37.8% for the first quarters
of 1997 and 1996, respectively. The increase in the overall rate is due to
higher effective state and foreign tax rates.
The Company has continued to expand the volume of its non-AT&T/Lucent/NCR
business. For the first quarter of 1997, non-AT&T/Lucent/NCR businesses
represented 73.3%, 62.5% and (112.4)% of the Company's total assets, revenues
and net income, respectively. That compares to 65.7%, 60.8% and 29.0%, of the
Company's total assets, revenues and net income, respectively, for the first
quarter of 1996. The 1997 non-AT&T/Lucent/NCR net loss is consistent with lower
portfolio revenue generated from lower average net portfolio assets (as a result
of the $3.0 billion securitization in the fourth quarter of 1996), increased
costs incurred in connection with the foreign businesses and lower relative
securitization gains. The Company anticipates ongoing securitization activity
equal to approximately one-third of the Company's total annual volumes.
Depending on the specific securitization, and the size and type of assets sold
(i.e., non-AT&T/Lucent/NCR versus AT&T/Lucent/NCR), the mix of
non-AT&T/Lucent/NCR and AT&T/Lucent/NCR income or loss, and to a lesser extent,
assets and revenues will vary significantly from quarter to quarter. (Please
refer to the first paragraph of Management's Discussion and Analysis of
Financial Condition and Results of Operations, "Forward Looking Statements" for
a discussion of the risks inherent in forward looking statements.)
CREDIT QUALITY
The active management 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, industry segment,
geographic location and maturity. The Company's financing activities have been
spread across a wide range of equipment types (e.g., telecommunications, general
equipment (such as general office, manufacturing and medical equipment),
information technology and transportation) and real estate and a large number of
customers located throughout the United States and, to a lesser extent, abroad.
-11-
The following chart (dollars in millions) reflects the Company's portfolio
credit performance indicators:
At At
March 31, December 31,
1997 1996 1996
- ---------------------------------------------------------------------------
Allowance for credit losses $163.8 230.5 $169.0
Allowance for credit losses/Portfolio assets 2.29% 2.45% 2.30%
Non-accrual assets $160.2 130.2 $135.1
Non-accrual assets/Portfolio assets 2.24% 1.38% 1.84%
Net charge-offs*/Portfolio assets 1.17% .54% 1.17%
Delinquency-owned assets
(two months or greater) 3.24% 1.92% 2.56%
Delinquency-owned and managed assets
(two months or greater) 2.76% 2.02% 2.18%
(*) Net charge-offs are based upon the twelve months ended March 31, 1997 and
1996 and December 31, 1996.
The 1997 first quarter provision for credit losses of $23.3 million
decreased $2.0 million, or 8.0% compared to the first quarter of 1996. The
decrease in the provision is consistent with the decrease in small-ticket assets
as a result of recent securitization activity. Generally the relative provisions
recorded on medium and large-ticket transactions are lower than small-ticket
assets.
The allowance for credit losses has decreased proportionately with the
decrease in portfolio assets as reflected in the related ratio.
The increase in nonaccrual assets over March 31, 1996 is due to a $36.5
million loan to a pulp and paper facility and a $26.9 million project finance
transaction. Excluding these unusually large accounts, nonaccrual assets would
be $96.7 million, or 1.35% of portfolio assets. Adjusting December 31, 1996 for
the pulp and paper facility, nonaccruals would have been 1.34% of portfolio
assets.
The increase in the delinquency since year-end of both owned and owned
and managed assets by 68 and 58 basis points, respectively, is due to the
project finance transaction discussed above and a $16.5 million delinquency of
an airline customer.
The Company maintains an allowance for credit losses at a level management
believes is adequate to cover estimated losses in the portfolio 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
As a result of securitization transactions, net portfolio assets decreased
$0.2 billion to $7.0 billion at March 31, 1997 compared to December 31, 1996. In
the first quarter of 1997, the Company securitized
-12-
$319.3 million of capital leases and $29.9 million of finance receivables.
Capital leases decreased $181.6 million, which reflects the impact of the
securitization offset in part by new capital lease originations. Despite the
first quarter securitization, finance receivables remained essentially flat at
$2.1 billion. The net investment in operating leases also remained unchanged at
$1.4 billion.
At March 31, 1997, the total portfolio assets managed by the Company on
behalf of others was $4.9 billion, up from $4.8 billion at December 31, 1996.
The increase reflects securitization activity partially offset by normal
portfolio run-off activity. Of the total assets managed by the Company on behalf
of others, 30.5% at March 31, 1997 and 31.1% at December 31, 1996 were assets
managed on behalf of AT&T/Lucent/NCR.
LIQUIDITY AND CAPITAL RESOURCES
In the first three months of 1997, the Company issued and repaid $11.1
billion of commercial paper and issued medium and long-term debt of $1.2 billion
and repaid $.9 billion. In the first three months of 1996, the Company issued
commercial paper of $5.8 billion and made repayments of $6.3 billion and issued
medium and long-term debt of $1.0 billion and repaid $.3 billion.
During the three month periods ended March 31, 1997 and 1996, principal
collections from customers, proceeds from securitized receivables and loan sales
aggregating $1.3 billion and $1.1 billion were received, respectively. These
receipts were primarily used for finance receivables and lease equipment
purchases of $1.4 billion in the first quarters of 1997 and 1996.
The Company maintains a back-up credit facility of $1.8 billion. This
facility, negotiated with a consortium of 25 lending institutions, supports its
commercial paper. At March 31, 1997, this facility was unused. Under the most
restrictive provision of the Company's back-up facility, the Company is required
to maintain a minimum consolidated tangible net worth (based on a formula that
includes a portion of current net income) of $550.6 million at March 31, 1997.
The Company is in compliance with this and all other covenants of the agreement.
To meet local funding requirements, the Company's foreign operations have
available lines of credit of approximately $301.6 million, of which
approximately $38.1 million was available at March 31, 1997.
Net cash used by operating activities for the first quarter of 1997 was
$33.8 million as compared to net cash provided of $148.4 million in the similar
prior-year period. The change in the level of cash associated with operating
activities is a function of lower net income (as previously discussed),
decreased non-cash items and a reduction in the Company's payables in the first
quarter.
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.
-13-
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.
The Company's ratio of debt to equity plus Preferred Securities was 7.21
at March 31, 1997 similar to the December 31, 1996 ratio of 7.13.
ASSET AND LIABILITY MANAGEMENT
AT&T Capital's asset and liability management process takes a coordinated
approach to the management of interest rate and foreign currency risks. The
Company's overall strategy is to match the duration and average cash flows of
its borrowings with the duration and 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. For a description of certain key elements of this
process, including AT&T Capital's use of derivatives to mitigate risk, see the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
At March 31, 1997, the total notional amount of the Company's interest rate
and currency swaps was $1.5 billion and $.6 billion, respectively, as compared
to $1.4 billion and $.3 billion, respectively, as of December 31, 1996. The U.S.
dollar equivalent of the Company's foreign currency forward exchange contracts
was $1.0 billion and $.9 billion at March 31, 1997 and December 31, 1996,
respectively.
There were no past due amounts or reserves for credit losses at March 31,
1997 related to derivative transactions. The Company has never experienced a
credit related charge-off associated with derivative transactions.
RECENT PRONOUNCEMENTS
See Note 2 to the unaudited consolidated financial statements.
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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 18, 1997.
(b) Holders of common shares voted at this meeting on the
following matter:
On April 17, 1997, in lieu of an annual meeting, Hercules
Holdings (Cayman) Limited, the majority stockholder of the
Company, consented to (a) setting the number of directors
constituting the Company's Board of Directors at nine, and
(b) electing the following persons to serve as directors
of the Company until the next annual meeting of stockholders:
John Appleton
James V. Babcock
David F. Banks
Max C. Chapman, Jr.
Guy Hands
Joseph J. Melone
Thomas C. Wajnert
Brooks Walker, Jr.
Hiromi Yamaji
In compliance with Delaware law, the Company's other
stockholders received notification of the majority
stockholder's consent to the aforementioned actions in lieu
of an annual meeting.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit Number
12. Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule
(b) Current reports on Form 8-K:
Report on Form 8-K, dated February 12, 1997, was filed pursuant to
Item 4 (Change in Registrant's Certifying Accountants).
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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 14, 1997 EDWARD M. DWYER
---------------
Edward M. Dwyer
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
EXHIBITS
Exhibit Description
Number
12. Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule