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 June 30, 1998
( ) 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 973-397-3000
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
----- -----
The registrant meets the conditions set forth in General Instruction H(1)(a)
and (b) of Form 10-Q and is therefore filing this Form with the reduced
disclosure format.
No voting stock of this registrant is held by any non-affiliates of the
registrant. At July 31, 1998, 101,811,848 shares of the registrant's Common
Stock, par value $.01 per share, were issued and outstanding to Newcourt Credit
Group USA Inc.
FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
1998 1997
(Unaudited)
---------- ----------
ASSETS:
Cash and cash equivalents $ 36,677 $ 8,317
Assets held for sale and inventory - 478,213
Net investment in finance receivables 2,332,265 2,343,604
Net investment in capital leases 2,379,690 3,288,141
Net investment in operating
leases, net of accumulated
depreciation of $841,019
in 1998 and $772,437 in 1997 1,586,752 1,593,582
Deferred charges and other assets 863,548 832,892
Receivable from Affiliates (a) 1,506,096 -
Deferred income taxes 202,704 231,146
--------- ----------
Total Assets $8,907,732 $8,775,895
========= =========
LIABILITIES, PREFERRED SECURITIES AND SHAREOWNER'S EQUITY:
LIABILITIES:
Short-term notes, less unamortized
discounts of $4,695 in 1998 and
$14,357 in 1997 $1,104,482 $1,868,585
Income taxes and other payables 600,974 714,122
Medium- and long-term debt 6,020,539 5,249,409
Commitments and contingencies
--------- ---------
Total Liabilities 7,725,995 7,832,116
--------- ---------
PREFERRED SECURITIES:
Company-obligated preferred
securities of subsidiary 200,000 200,000
(continued)
2
FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
(Dollars in Thousands)
June 30, December 31,
1998 1997
(Unaudited)
----------- -----------
SHAREOWNER'S EQUITY:
Common stock, one cent par value:
Authorized 150,000,000 shares,
issued and outstanding,101,811,848 and
90,337,379 shares in 1998 and 1997 $ 1,018 $ 903
Additional paid-in capital 852,715 651,552
Recourse loans to senior executives - (15,471)
Foreign currency translation
adjustments (5,525) (4,032)
Retained earnings 133,529 110,827
--------- ---------
Total Shareowner's Equity 981,737 743,779
--------- ---------
Total Liabilities, Preferred Securities
and Shareowner's Equity $8,907,732 $8,775,895
========== ==========
(a) At June 30, 1998, "Affiliates" as defined herein are Newcourt Credit Group
Inc., "Newcourt", and certain subsidiaries of Newcourt.
The accompanying notes are an integral part of these Consolidated
Financial Statements.
3
FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Dollars in Thousands)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
Revenues:
Finance revenue $ 59,354 $ 54,857 $118,798 $109,166
Capital lease revenue 70,253 89,959 153,762 180,706
Rental revenue on
operating leases 217,772 200,328 435,749 397,051
Revenue from securitizations
and loan sales 23,325 21,396 40,742 34,428
Equipment sales 15,832 12,565 22,237 20,740
Other revenue, net 78,364 57,288 134,549 115,231
------- ------- -------- -------
Total Revenues 464,900 436,393 905,837 857,322
------- ------- -------- -------
Expenses:
Interest 123,864 108,852 239,077 214,169
Operating and
administrative 117,614 130,748 253,482 267,031
Depreciation on
operating leases 143,642 133,176 285,704 265,152
Cost of equipment
sales 14,207 11,423 20,367 18,652
Provision for credit
losses 26,282 22,678 51,540 45,957
------- ------- -------- -------
Total Expenses 425,609 406,877 850,170 810,961
Distributions on Company
-obligated preferred
securities of subsidiary 4,530 4,530 9,060 9,060
------- ------- ------- -------
Income before income taxes 34,761 24,986 46,607 37,301
Provision for income taxes 19,317 9,791 23,905 14,678
-------- ------- -------- --------
Net Income $ 15,444 $ 15,195 $ 22,702 $ 22,623
======== ======== ======== ========
Other Comprehensive Income
(Loss) $ 2,197 $( 3,415) $( 3,065) $( 4,094)
Provision(benefit)for taxes 1,221 ( 1,338) ( 1,572) ( 1,611)
-------- -------- -------- --------
Total Other Comprehensive
Income (Loss), Net of Tax 976 ( 2,077) ( 1,493) ( 2,483)
-------- -------- -------- --------
Comprehensive Income $ 16,420 $ 13,118 $ 21,209 $ 20,140
========= ======== ======== ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
For the six months
ended June 30,
1998 1997*
--------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,702 $ 22,623
Noncash items included in income:
Depreciation and amortization 312,953 290,243
Deferred taxes 24,351 (59,544)
Provision for credit losses 51,540 45,957
Revenue from securitizations and loan sales (40,742) (34,428)
Decrease in deferred charges and
other assets (77,620) 44,069
Increase (decrease) in income taxes and other
payables 102,180 (48,839)
Decrease in payables to Former Affiliates - (27,245)
--------- ---------
Net cash provided by Operating Activities 395,364 232,836
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of finance asset portfolios (40,284) -
Financings and lease equipment purchases (2,148,198) (2,903,909)
Principal collections from customers 1,288,294 1,714,816
Cash proceeds from securitizations and
loan sales 925,057 768,945
Loans made to Affiliates (1,386,441) -
Proceeds from sale of subsidiary 14,283 -
--------- ---------
Net cash used for Investing Activities $(1,347,289) $ (420,148)
--------- ---------
(Continued)
5
FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
(Dollars in Thousands)
(Unaudited)
For the six months
ended June 30,
1998 1997*
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term notes, net $ (764,103) $ (236,092)
Additions to medium- and long-term debt 3,295,677 1,848,471
Repayments of medium- and long-term debt (1,766,760) (1,416,039)
Proceeds from repayment of recourse
loans to senior executives 15,471 -
Proceeds from issuance of common stock 200,000 -
---------- ---------
Net cash provided by Financing
Activities 980,285 196,340
--------- ---------
Net Increase in Cash and Cash Equivalents 28,360 9,028
Cash and Cash Equivalents at beginning of period 8,317 -
--------- ---------
Cash and Cash Equivalents at end of period $ 36,677 $ 9,028
========== ==========
Non-Cash Investing and Financing Activities:
In the first six months of 1998 and 1997, the Company entered into capital
lease obligations of $68,054 and $3,256, respectively, for equipment that was
subleased.
*Certain amounts have been reclassified to conform to the 1998
presentation.
The accompanying notes are an integral part of these Consolidated
Financial Statements.
6
FORM 10-Q
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, 1997.
2. Recent Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures About
Segments of an Enterprise and Related Information". SFAS No. 131 establishes a
new model for segment reporting. The Statement requires reporting of financial
and descriptive information about a company's reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. It also requires reporting of certain information about products
and services, geographic areas of operation, and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. The Company will adopt this standard in its 1998 annual financial
statements. Comparative information for earlier years will be restated.
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Post Retirement Benefits". SFAS No. 132 revises
employer's disclosures about pension and other post retirement benefit plans but
does not change the measurement or recognition of those plans. The Statement
standardizes the disclosure requirements to the extent practicable, requires
additional information changes in the benefit obligations and fair value of plan
assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997. The Company will adopt this standard in
its 1998 annual financial statements. Comparative information for earlier years
will be restated, if readily available.
7
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires that an entity measure all derivative instruments at fair value and
recognize such instruments as either assets or liabilities in the consolidated
statements of financial condition. The accounting for changes in the fair value
of a derivative instrument depends on the intended use of the derivative as
either a fair value hedge, a cash flow hedge or a foreign currency hedge. The
effect of the changes in fair value of the derivatives are to be reflected in
either the consolidated statements of income or as a component of other
comprehensive income based upon the resulting designation. SFAS 133 is effective
for fiscal years beginning after June 15, 1999. The Company will adopt this
standard in its 2000 annual financial statements. The Company has not yet
determined the impact of this statement on the Company's consolidated financial
statements, taken as a whole.
8
3. Subsidiary Debentures
The table below shows summarized consolidated financial information for
AT&T Capital Leasing Services, Inc. and AT&T Capital Services Corporation, both
wholly-owned subsidiaries of the Company. The Company has guaranteed, on a
subordinated basis, payment on debentures issued by these subsidiaries (dollars
in thousands).
AT&T Capital Leasing Services, Inc. For the six months ended
June 30,
(unaudited)
1998 1997
---- ----
Total revenues $ 79,723 $ 75,929
Interest expense 12,548 21,156
Operating and administrative expenses 34,123 41,492
Provision for credit losses 20,429 24,051
Income (Loss) before taxes 7,640 (12,196)
Net Income(a) 12,727 1,192
June 30, December 31,
1998 1997
(unaudited)
------------- --------------
Total assets 839,950 786,895
Total debt 708,001 675,420
Total liabilities 782,959 742,633
Total shareowner's equity $ 56,991 $ 44,262
AT&T Capital Services Corporation For the six months ended
June 30,
(unaudited)
1998 1997
---- ----
Total revenues $ 56,788 $ 58,809
Interest expense 1,954 3,395
Operating and administrative expenses 20,325 23,517
Provision for credit losses 95 591
Income before taxes 7,330 2,344
Net income 4,390 1,356
June 30, December 31,
1998 1997
(unaudited)
-------------- -------------
Total assets 157,970 147,182
Total debt 112,586 108,794
Total liabilities 140,198 133,800
Total shareowner's equity $ 17,772 $ 13,382
(a) Net income for 1998 and 1997 includes a $5.1 million and $13.4 million tax
benefit relating to a $12.8 million and $34.1 million book loss subject to tax,
respectively. Pre-tax book income includes equity investment revenue not taxable
to AT&T Capital Leasing Services, Inc. The 1997 net income has been restated to
reflect this benefit.
9
4. Securitizations
During the first and second quarters of 1998, the Company securitized
approximately $345.5 million and $448.7 million, respectively, of capital leases
and loan receivables through private conduit facilities. The Company retained an
interest in the underlying cash flows. The fair value of such retained interests
were calculated using a fair market discount rate of like kind cash flows of
approximately 7.5%.
5. Receivable from Affiliate
The Company has an interest bearing intercompany receivable aggregating
$1,350.0 million at June 30, 1998 as a result of raising debt on behalf of
certain subsidiaries of Newcourt Credit Group Inc., an Ontario, Canada
corporation ("Newcourt"), an indirect owner of one hundred percent of the issued
and outstanding capital stock of the Company. The net interest income associated
with the intercompany receivables for the three and six months ended June 30,
1998 was $20.4 million and $24.6 million, respectively.
6. Restructuring Charges
At December 31, 1997, the Company recorded a reserve pursuant to a
restructuring plan. The following is a roll forward of such reserve (in
thousands) and the approximate number of employees to be terminated.
Activity
At December 31, through At June 30,
1997 June 30, 1998 1998
----------------- ----------------- ------------
Severance and benefits
related costs $32,920 $15,122 $17,798
Facility closing costs 2,173 2,163 10
----------------- ------------------ ------------
Total $35,093 $17,285 $17,808
----------------- ----------------- ------------
Approximate number of
employees to be
terminated 200 160 40
----------------- ----------------- ------------
As of June 30, 1998, the Company has terminated the majority of the
employees identified and believes the remaining reserve is adequate to cover the
costs to complete the plan of restructure. With regard to this plan, there has
been no adjustment to the reserve estimate on the estimated number of employees
to be terminated.
7. 1998 Sale of the Company and Related Transactions
On January 12, 1998, Newcourt consummated the purchase (the "Newcourt
Acquisition") of all of the outstanding shares of common stock of AT&T Capital,
pursuant to a Stock Purchase Agreement dated as of November 17, 1997 among the
Company, Newcourt, Hercules Holdings (Cayman) Limited and certain management
stockholders. In connection with the Newcourt Acquisition, the Company received
$15.5 million in settlement of recourse loans to senior executives. Also, in
connection with the Newcourt Acquisition, all of the outstanding shares of
common stock of AT&T Capital were transferred to Newcourt Holdings USA, Inc., a
wholly-owned subsidiary of Newcourt, and are owned indirectly by Newcourt. For
further discussion regarding the Newcourt Acquisition, see Note 1 to the Audited
Consolidated
10
Financial Statements included in the Company's 1997 Annual Report filed on Form
10-K.
On March 31, 1998 Newcourt Holdings USA, Inc. merged with and into
Newcourt Credit Group USA Inc., a wholly-owned subsidiary of Newcourt, with
Newcourt Credit Group USA Inc. being the surviving entity. Also on March 31,
1998, AT&T Capital Canada, Inc. (a wholly-owned subsidiary of the Company), was
sold at book value to Newcourt resulting in no gain or loss. The total amount of
assets sold at March 31, 1998 was $252.2 million.
On April 1, substantially all of the operations of the Company's
European businesses were sold to Newcourt. The assets were sold at book value
excluding the cumulative foreign exchange translation loss and, therefore, the
Company recognized a pretax loss from such sale of $1.3 million, the amount of
the cumulative foreign exchange translation loss. In addition, in connection
with such sale, the Company wrote-off $6.0 million of deferred tax assets it no
longer expects to realize. The total amount of assets relating to these
businesses totaled $803.4 million at March 31, 1998.
As of April 1998, the Company is no longer pursuing the sale of its US
consumer automotive business but will let the portfolio liquidate. The carrying
value of these assets ($411.5 million at March 31, 1998), previously classified
as assets held for sale, have been reclassified to portfolio assets. However, as
a result of the Newcourt Acquisition, the Company may divest additional
businesses or portfolios.
During June of 1998, the Company divested its joint venture with
American Express. The Company sold approximately $77.0 million of assets and
recognized a pre-tax gain of approximately $16.8 million.
On June 4, 1998, the Company issued approximately 11.5 million shares of
its common stock to Newcourt Credit Group USA Inc. in exchange for $200.0
million.
8. Company-obligated preferred securities
As a result of the Newcourt Acquisition, the Company intends to
repurchase the Company obligated preferred securities in order to recapitalize
the combined company.
On July 27, 1998, an Offer to Purchase and Consent Solicitation (the
"Offer") in connection with the 9.06% Trust Originated Preferred Securities (the
"TOPrS" or "Company-obligated preferred securities") of Capita Preferred Trust,
was announced to all of the holders of record of the TOPrS as of July 20, 1998.
AT&T Capital invited all holders of the TOPrS to tender any and all of their
TOPrS for purchase. In conjunction with the Offer the Company solicited consents
from the holders to amend the Limited Partnership Agreement and the indentures
pursuant to which three debentures (the "Debentures") have been issued by AT&T
Capital and two of its wholly-owned subsidiaries. The proposed amendments will
provide for an early redemption of the Partnership Preferred Securities and
Debentures, which in turn will cause the optional redemption of any and all
TOPrS that have not been tendered in the Offer. Following the successful
consummation of the Offer and the Consent Solicitation in accordance with their
respective terms, there will not be any TOPrS that remain outstanding.
11
In connection with this Offer, the estimated aggregate of the offer
premium and other related costs is expected to be approximately $50 million.
9. Subsequent Event
Effective August 1, 1998, the Company will no longer be managing
approximately $1.5 billion of assets on behalf of AT&T Corp. The Company's ratio
of Operating and Administrative to Owned and Managed Assets will be negatively
impacted. Excluding these assets at June 30, 1998, such ratio for the Company
would have been 4.06% versus 3.63%.
12
FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Omitted under the provisions set forth in General Instruction H of the
Form 10-Q requirements under the Securities Exchange Act of 1934. In lieu of
Item 2, the Company has provided a narrative analysis of the results of
operations explaining the reasons for material changes in the amount of revenue
and expense items between the most recent year-to-date period presented and the
corresponding year-to-date period in the preceding fiscal year.
MANAGEMENT'S NARRATIVE
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
narrative, 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 and uncertainties include, among others, those described
under "Risk Factors" included in Item 7 of AT&T Capital Corporation's ("AT&T
Capital" or the "Company") 1997 Annual Report on Form 10-K, many of which are
beyond the control of the Company. 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.
1998 SALE OF THE COMPANY AND RELATED TRANSACTIONS
See Note 7 to the unaudited Consolidated Financial Statements.
RESULTS OF OPERATIONS
Unless otherwise indicated, all period to period comparisons represent
activity or balances at or for the six months ended June 30, 1998 versus June
30, 1997.
13
Net Income
Net income of $22.7 million was relatively flat period over period.
Increased other revenue, operating lease margin and finance revenue and
decreased operating and administrative expenses were offset by a decrease in
capital lease revenue and an increase in interest expense.
Key financial operating statistics
The following table sets forth certain key financial operating
statistics of the Company's operations:
For the six
months ended
June 30,
1998 1997
------------------------
(dollars in millions)
Finance revenue $ 118.8 $ 109.2
Capital lease revenue 153.8 180.7
Operating lease margin 150.0 131.9
-------------------------
Net portfolio revenue 422.6 421.8
-------------------------
Less: Interest expense 239.1 214.2
-------------------------
Net interest margin (a) 183.5 207.6
-------------------------
Average net portfolio
assets $6,921.9 $7,236.7
-------------------------
Net interest margin
percentage (a) 5.30% 5.74%
-------------------------
Finance receivables-
average yield 9.93% 10.09%
Capital leases-average
yield 10.46% 9.91%
Operating lease margin
percentage 34.43% 33.22%
-------------------------
Total portfolio yield 12.21% 11.66%
-------------------------
Debt/Equity plus Preferred
Securities 6.03x 7.17x
a) Net interest margin is comprised of net portfolio revenue (finance revenue,
capital lease revenue and operating lease margin) less interest expense. Net
interest margin percentage equals the net interest margin (annualized for the
six months ended June 30, 1998 and 1997, respectively) divided by the respective
average net portfolio assets.
Capital lease revenue
Capital lease revenue decreased $26.9 million or 14.9%. The 19.3% decrease
to $2.9 billion in the average net capital lease portfolio was responsible for
approximately $34.9 million of the decrease. The decrease in the average net
capital lease portfolio was due primarily to the sale of certain assets of the
Canadian and European business units to Newcourt in March and April,
respectively, and the December 1997 sale of the Company's North American fleet
automotive portfolio to a third party, the effects of which were slightly offset
by increases in certain small ticket portfolios.
14
The increase in the average yield of 55 basis points to 10.46% partially offset
the decrease in revenue by $8.0 million.
Operating lease margin
Rental revenue on operating leases of $435.7 million increased
$38.7 million, or 9.7%. Depreciation expense on operating leases of $285.7
million increased $20.6 million, or 7.8%. The revenue increase was generated by
the Company's enterprise server and telecommunications portfolios and was
partially offset by the sale of the North American fleet automotive portfolio.
The 121 basis point increase in operating lease margin percentage to 34.43%
resulted primarily from a higher proportion of renewal revenue.
Net interest margin
Net interest margin of $183.5 million was 5.30% of average net portfolio
assets compared with $207.6 million, or 5.74%. Net interest margin decreased by
$24.1 million, or 11.6% due to relatively flat portfolio revenue and higher
interest expense associated with carrying a higher level of debt. The interest
expense associated with carrying a higher level of debt reduced the margin by
approximately $26.5 million, while the slightly lower cost of debt (6.33% versus
6.37%) partially offset this reduction by $1.5 million. The increase in debt is
primarily the result of borrowings made by the Company on behalf of certain
subsidiaries of Newcourt. Average net portfolio assets of $6,921.9 million were
$314.8 million, or 4.4% lower causing a decrease in portfolio revenue of
approximately $8.5 million. An increase in the overall portfolio yield to 12.21%
from 11.66%, increased revenue by approximately $9.4 million. The reduction in
the average net portfolio assets is primarily the result of the previously
mentioned sale of certain assets of the Canadian and European business units and
the Company's North American fleet automotive portfolio.
Non-portfolio revenue
The following table summarizes the components of non-portfolio revenue
which includes revenue from securitizations and loan sales, equipment sales, and
other net revenue. In addition, equipment sales margin (equipment sales less
cost of equipment sales) and the equipment sales margin percentage (equipment
sales margin divided by equipment sales) are presented.
For the six months
ended June 30,
1998 1997
-----------------------------
(dollars in millions)
Revenue from securitizations
and loan sales $ 40.7 $ 34.4
-----------------------------
Equipment sales 22.2 20.7
Cost of equipment sales (20.4) (18.6)
-----------------------------
Equipment sales margin $1.9 $2.1
-----------------------------
Equipment sales margin
percentage 8.4% 10.1%
-----------------------------
----------------------------
Other revenue, net $134.5 $115.2
-----------------------------
-----------------------------
Total non-portfolio revenue $197.4 $170.3
-----------------------------
15
Revenue from securitizations and loan sales
Revenue from securitizations and loan sales, including SBA loans, increased
$6.3 million. Securitization revenue increased $5.5 million, or 23.1%, and was
primarily due to an increased spread between the average yield and the discount
rate and $175.3 million, or 28.3%, more in assets sold compared to prior year.
Loan sales revenue increased $0.8 million.
Other revenue increased $19.3 million due to interest income of $24.6
million from certain subsidiaries of Newcourt. This interest is the result of
debt placement done by the Company on behalf of certain subsidiaries of
Newcourt. There is an offsetting increase in interest expense for this amount.
Expenses
Interest expense
For the six months
ended June 30,
1998 1997
----------------------
(dollars in millions)
Interest expense $ 239.1 $ 214.2
Average borrowings outstanding $7,552.9 $6,721.7
Average cost of debt 6.33% 6.37%
Interest expense increased $24.9 million, or 11.6%. As discussed in the net
interest margin section above, a $26.5 million increase in interest expense
resulted from carrying a higher level of debt and a slightly lower average cost
of debt partially offset this increase by $1.5 million. The increase in the
average borrowings outstanding was largely due to borrowings made by the Company
on behalf of certain subsidiaries of Newcourt.
Operating and Administrative (O&A) Expenses
For the six months
June 30,
1998 1997
-----------------------
(dollars in millions)
O&A expenses $ 253.5 $267.0
Total period-end owned and
managed assets $13,980.7 12,970.8
O&A/period-end total owned
and managed assets(a) 3.63% 4.12%
------------------------
(a) Ratio annualizes O&A for the six months ended June 30, 1998 and 1997,
respectively.
The $13.5 million, or 5.1% decrease in O&A was largely due to an $8.6
million decrease in professional fees resulting from halting various data
systems projects due to common platform initiatives established by Newcourt. In
addition, a reduction in headcount and other related expenses contributed $5.0
million. The improvement in the O&A ratio resulted from
16
the decreased O&A expenses and a $1,009.9 million, or 7.8%, increase in owned
and managed assets.
Effective August 1, 1998 the Company will no longer be managing approximately
$1.5 billion of assets on behalf of AT&T Corp. The Company's future ratio of O&A
to Owned and Managed assets will also be negatively impacted. Excluding these
assets at June 30, 1998, the Company's ratio would have been 4.06% versus 3.63%.
Provision for income taxes
For the six months
ended June 30,
1998 1997
----------------------
(dollars in millions)
Provision for income taxes $23.9 $14.7
Effective income tax rate 51.3% 39.3%
----------------------
The increase in the 1998 effective rate resulted from the $6.0 million
write-off of deferred tax assets which are related to the European operations
that were sold to Newcourt and are not expected to be realized.
Item 3. Quantitative and Qualitative disclosures about Market Risk.
Omitted in accordance with General Instruction H.
17
FORM 10-Q
AT&T CAPITAL CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
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:
None
18
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
DANIEL A. JAUERNIG
August 12, 1998 Daniel A. Jauernig
Group President and
Chief Financial Officer
19
FORM 10-Q
EXHIBIT INDEX
EXHIBITS
Exhibit Description
Number
12. Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule
20