USL CAPITAL CORP/, 10-Q, 1996-08-14

USL CAPITAL CORP/
10-Q, 1996-08-14
FINANCE LESSORS

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<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 1996

Commission file number 1-4976

USL Capital Corporation
------------------------------------------------------
(Exact name of registrant as specified in its charter)

Delaware 94-1360891
- ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)

733 Front Street, San Francisco, California 94111
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

(415) 627-9000
----------------------------------------------------
(Registrant's telephone number, including area code)

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
--- ---

As of August 14, 1996, the Registrant had outstanding 10 shares of
Common Stock, all of which were owned by Ford Holdings, Inc.

THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
H(1)(a) AND (b), AND IS THEREFORE FILING THIS FORM 10-Q WITH REDUCED DISCLOSURE
FORMAT.
<PAGE> 2
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES

I N D E X

<TABLE>
<CAPTION>
Page No.

<S> <C>
Part I - Financial Information:

Item 1. Financial Statements

Consolidated Balance Sheets --
June 30, 1996 and December 31, 1995 .......................... 3

Consolidated Statements of Income --
Three and six months ended June 30, 1996 and 1995 ............ 4

Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995 ...................... 5

Notes to Condensed Consolidated Financial Statements ........... 6

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 7

Part II - Other Information:

Item 5. Other Informaion ............................................... 11
Item 6. Exhibits and Reports on Form 8-K ............................... 12
Signatures ..................................................... 13
</TABLE>
<PAGE> 3
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)
JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1996 1995
- ---------------------------------------------------------------------------------------------

<S> <C> <C>
ASSETS
Cash and equivalents $ 12,087 $ 11,474
Investment in finance leases 2,571,770 2,548,944
Notes receivable 1,388,480 1,039,597
Investment in operating leases 975,453 904,391
Investment in leveraged leases 443,394 438,504
Investment in securities 998,309 1,064,841
Inventory held for sale or lease 117,982 107,514
Other receivables 22,403 21,759
Investment in associated companies 16,149 17,215
Office facilities at cost less accumulated depreciation 8,940 8,741
Goodwill 174,712 177,551
Other assets 25,347 20,231
---------- ----------

Total assets $6,755,026 $6,360,762
========== ==========

LIABILITIES
Short-term notes payable $1,775,234 $1,417,754
Accounts payable 38,079 83,849
Accrued liabilities and lease deposits 162,371 205,186
Payable to Ford and affiliates 29,905 109,557
Deferred taxes on income 580,820 534,925
Long-term debt 3,254,334 3,171,637
---------- ----------

Total liabilities 5,840,743 5,522,908
---------- ----------

COMMITMENTS AND CONTINGENCIES - -

SHAREHOLDER'S EQUITY
Common stock * *
Additional capital 521,425 521,425
Net unrealized (loss) on available-for-sale securities (7,801) (3,782)
Retained earnings 400,659 320,211
---------- ----------

Total shareholder's equity 914,283 837,854
---------- ----------

Total liabilities and shareholder's equity $6,755,026 $6,360,762
========== ==========
</TABLE>

* Less than one thousand dollars

- --------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3
<PAGE> 4
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES

CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
(UNAUDITED; IN THOUSANDS) 1996 1995 1996 1995
- ---------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
REVENUES $192,313 $164,639 $379,709 $320,223
-------- -------- -------- --------

EXPENSES
Sales, administrative and general 17,775 16,957 35,912 33,920
Interest 78,009 67,996 153,772 134,078
Depreciation -- operating leases 33,331 29,064 65,545 58,393
Other 7,968 7,625 13,979 12,687
-------- -------- -------- --------

Total expenses 137,083 121,642 269,208 239,078
-------- -------- -------- --------

Income before taxes on income 55,230 42,997 110,501 81,145
Taxes on income 14,305 13,434 30,053 25,640
-------- -------- -------- --------

NET INCOME $ 40,925 $ 29,563 $ 80,448 $ 55,505
======== ======== ======== ========
</TABLE>

- --------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4
<PAGE> 5
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
(UNAUDITED; IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------

<S> <C> <C>
Net cash flows from operating activities $ 121,657 $ 142,001
--------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES
Recovery of equipment costs and residual interests 395,507 362,856
Cost of equipment acquired for lease (564,686) (507,069)
Notes receivable investments (304,352) (104,876)
Collections on notes receivable investments 172,129 84,375
Purchase of held-to-maturity securities (40,617) (38,976)
Maturity of held-to-maturity securities 28,365 13,158
Purchase of available-for-sale securities (78,064) (64,503)
Sale and maturity of available-for-sale securities 30,216 3,128
Purchase of other equity securities not subject to SFAS 115 (115,072) (12,901)
Increase in deferred initial direct costs (6,548) (6,133)
Other (8,166) (1,179)
--------- ---------

Net cash used in investing activities (491,288) (272,120)
--------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings 484,029 456,078
Long-term debt repaid (401,332) (262,094)
Net increase in short-term borrowings 357,480 31,016
(Decrease) in funds collected for affiliates (29,933) -
Dividend to parent (40,000) (100,000)
--------- ---------

Net cash provided by financing activities 370,244 125,000
--------- ---------

Increase in cash and equivalents 613 (5,119)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 11,474 16,226
--------- ---------

CASH AND EQUIVALENTS AT END OF PERIOD $ 12,087 $ 11,107
========= =========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Interest paid $ 153,149 $ 134,382
Income taxes paid 132 268

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Accrued interest on bond accretion and notes receivable added to principal $ 2,192 $ 2,178
Lease equipment and notes receivable transferred to inventory
held for sale or lease 20,092 2,552
Fair market value adjustment on available-for-sale securities (6,591) 3,898
Deferred and commitment fees transferred to notes receivable 1,914 -
</TABLE>

- --------------------------------------------------------------------------------
See NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5
<PAGE> 6
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods. The results of operations for such interim periods are not
necessarily indicative of results of operations for a full year. The December
31, 1995 consolidated balance sheet included herein is derived from the audited
financial statements included in the Company's annual report on Form 10-K for
the year ended December 31, 1995, but does not include all disclosures required
by generally accepted accounting principles. The statements should be read in
conjunction with the significant accounting policies and notes to consolidated
financial statements included in the Form 10-K for the year ended December 31,
1995. Certain amounts have been reclassified to conform to the 1996
presentation.

The Company is a wholly-owned subsidiary of Ford Holdings, Inc., the common
stock of which is owned by Ford Motor Company ("Ford") and Ford Motor Credit
Company, a wholly-owned subsidiary of Ford.

2. IMPAIRMENT OF LONG-LIVED ASSETS

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", effective January 1, 1996. The effect on the
Company's financial statements was not material.

6
<PAGE> 7
USL CAPITAL CORPORATION
AND SUBSIDIARY COMPANIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Pursuant to General Instructions H(2)(a), the following narrative analysis
is presented in lieu of Management's Discussion and Analysis of Financial
Condition and Results of Operations.

RECENT DEVELOPMENTS

As previously reported, Ford has stated that it intends to sell the
Company's businesses separately to achieve the highest value for the Company's
assets.

On July 1, 1996, the Company completed the sale of its Fleet Services
business unit to Associates Commercial Corporation, a subsidiary of Associates
First Capital Corporation, for $873,000,000, subject to post-closing
adjustments. On July 31, 1996, the Company completed the sale of its Rail
Services business unit to First Union Corporation for $928,000,000, subject to
post-closing adjustments. The Company's Rail Services business unit includes
over 26,000 rail cars and represented 12% of the Company's earning assets as of
June 30, 1996. Both sales were the result of competitive bidding processes.

On July 26, 1996, Ford and BankAmerica Corporation announced that they had
reached agreement for BankAmerica Leasing and Capital Group, affiliates of
BankAmerica Corporation, to acquire the Company's Transportation and Industrial
Financing portfolio for approximately $1.8 billion. The portfolio consists
primarily of leases on aircraft, rail, marine and other industrial equipment and
machinery. The Company's Transportation and Industrial Financing business unit
represented 25% of the Company's earning assets as of June 30, 1996. These
transactions are expected to be substantially completed by September 30, 1996,
subject to certain conditions.

The Company has commenced the sale of the assets of the Municipal and
Corporate Financing business unit. At June 30, 1996, $638 million of the assets
of this business unit had been sold. As of July 31, 1996, $1.2 billion,
representing approximately 90% of the assets of the Municipal and Corporate
Financing business unit has been sold.

On August 6, 1996, Ford Motor Company announced an agreement to sell the
Company's Business Equipment Financing Unit to Mellon Bank, N.A., for
approximately $1.7 billion. The Business Equipment Financing business unit is a
middle-market equipment leasing and financing provider with transactions ranging
from $250,000 to $10 million. This business unit represented 22% of the
Company's earning assets as of June 30, 1996.

During the second half of 1996, the Company intends to sell its remaining
assets and reduce its staff accordingly. Discussions continue on the sale of the
Company's remaining business unit, Real Estate Financing.

On July 29, 1996, the Company received the requisite number of consents
from its bondholders to make certain amendments in certain provisions of the
debt agreements covering all $3.2 billion of the Company's long-term debt. On
July 31, 1996, the Company and Ford Credit executed supplemental indentures
whereby Ford Credit became a co-obligor with the Company on all such debt. As of
July 31, 1996, the Company had repaid all outstanding short-term borrowings.
Effective August 2, 1996, the Company canceled all existing bank lines.
Accordingly, the Company does not anticipate incurring any additional
third-party debt. In connection with Ford Credit's becoming co-obligor on the
Company's debt agreements, the Company intends that cash proceeds from sales of
assets will be loaned

<PAGE> 8
to Ford Credit in an amount up to the outstanding debt. The Company intends to
lend the remaining excess from the sale of assets to other affiliated companies.

In order to hedge against changes in the price of certain assets being sold
as a result of movements in interest rates, the Company has entered into two
interest rate swap agreements. One agreement is for two years with a notional
amount of $1.525 billion and the second is a ten year agreement with a notional
value of $600 million. The Company expects to terminate and settle these
agreements when the assets are sold.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
Revenues, Expenses and Operating Profit

Six Months Ended 1996 vs. 1995
June 30, Increase/(Decrease)
-------------------- -------------------
(In thousands) 1996 1995 Amount %
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $379,709 $320,223 $59,486 19%
-------- -------- ------- --

Expenses
Sales, admin. & general 35,912 33,920 1,992 6
Interest 153,772 134,078 19,694 15
Depreciation 65,545 58,393 7,152 12
Other expenses 13,979 12,687 1,292 10
-------- -------- ------- --

Total expenses 269,208 239,078 30,130 13
-------- -------- ------- --

Operating Profit $110,501 $ 81,145 $29,356 36%
======== ======== ======= ==
</TABLE>

Revenues

Consolidated revenues increased $59 million or 19% during the first six
months of 1996 primarily as a result of a 24% increase in average earning
assets. The increased revenues also result from a $17 million increase in gain
on asset sales, primarily in the Municipal and Corporate Financing, the
Transportation and Industrial Financing and the Rail Services business units.

Expenses

Total expenses for the first six months of 1996 increased $30 million or
13%, and are discussed below.

Sales, administrative and general expenses increased $2 million or 6% in the
first six months of 1996. The increase is a result of higher expenses to support
the increase in the portfolio of earning assets as compared to prior periods and
normal inflationary increases offset in part by improved operating cost
performance.

Interest expense increased $20 million or 15% for the six-month period,
reflecting an increase during the period in average borrowings from $3.92
billion in 1995 to $4.82 billion in 1996 to finance the growth in earning
assets. This increase was offset in part by a decrease in borrowing rates, which
averaged 6.4% in the first six months of 1996 compared to 6.8% in the 1995
period.

Depreciation expense on operating lease equipment increased $7 million or
12% in the 1996 six-month period, resulting from the 21% or $230 million
increase in the average investment in the cost of operating lease equipment
compared to a year ago. Of the increase in operating lease equipment, railcars
in the Rail Services business unit, which have longer useful lives and
depreciate more slowly than other operating lease equipment, increased $180
million or 37%.

8
<PAGE> 9
Other Expenses increased $1 million or 10% in the 1996 first six months due
to a $3 million increase in provision for losses (see Credit loss experience).
This was offset in part by a decrease in operating lease expenses of
approximately $2 million, primarily as a result of a decline in maintenance
expense incurred by the Rail Services business unit. Because of higher
utilization of the railcars in 1996, maintenance expense has decreased due to
fewer cars being sent to repair shops for routine maintenance.

Income before taxes on income

Based upon the discussion above, operating profit for the first six months
of 1996 improved $29 million or 36% compared with the first six months of 1995
results.

Taxes on income

Income tax expense was 27.2% of income before taxes in the 1996 six-month
period compared with 31.6% in the same 1995 period. The decrease is primarily a
result of the effect on the 1996 expense of tax benefits associated with the
Company's investments in qualified low income housing transactions.

Other

As a result of the decision to sell the Company's assets, all security
investments previously classified as held-to-maturity were reclassified as
available-for-sale as of June 30, 1996. There was no effect on the Company's
income as a result of this action.

9
<PAGE> 10
GENERAL

Credit loss experience

The management of credit exposure is an important element of the Company's
business. The Company reviews the credit of all prospective customers, and
manages concentration exposures by customer, collateral type, and geographic
distribution. It establishes appropriate loss allowances based on the credit
characteristics and the loss experience for each type of business, and also
establishes additional reserves for specific transactions if it believes this
action is warranted. Delinquent receivables are reviewed by management monthly,
and generally are written down to expected realizable value when, in the opinion
of management, they become uncollectible or when they become more than 180 days
past due. Collection activities continue on accounts written off when management
believes such action is warranted.

The table below shows certain information on the Company's allowance for
doubtful accounts related to earning assets for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, DECEMBER 31,
--------------------- -------------------
1996 1995 1995
- ------------------------------------------------------------------------------------------------------

<S> <C> <C> <C>
Allowance for doubtful accounts (in millions)
Beginning balance $ 60 $ 58 $ 58
Provision 6 3 6
Charge-offs - net (2) (3) (4)
------ ------ ------
Ending balance $ 64 $ 58 $ 60
====== ====== ======

Percent of earning assets 1.0% 1.1% 1.0%

Total balance of accounts receivable over
90 days past due at period end (in millions) $ 24 $ 27 $ 23
Percent of earning assets 0.4% 0.5% 0.4%

Total earning assets (in millions)
Investment in finance leases - net $2,572 $2,458 $2,549
Investment in operating leases - net 976 735 904
Investment in leveraged leases - net 443 319 438
Notes receivable 1,389 836 1,040
Investment in securities 998 799 1,065
Inventory held for sale or lease 118 85 108
Investment in associated companies 16 18 17
------ ------ ------

Total $6,512 $5,250 $6,121
====== ====== ======
</TABLE>

During the first six months of 1996, total accounts receivable over 90 days
past due remained virtually unchanged. The completion in March 1996 of
foreclosure on an office/retail complex, which was collateral for a $10 million
note which was delinquent at December 31, 1995, was offset by new delinquencies,
primarily four delinquent leases with gross receivables totaling $5 million.
Management is currently in the process of attempting to restructure these
transactions or sell its claims to third parties. Additions to the provision
increased $3 million when compared to the first six months of 1995, as a result
of management's evaluation of the adequacy of the allowance for doubtful
accounts.

10
<PAGE> 11
Earning assets by business unit

The table below summarizes the earning assets by business unit as a
percentage of the total.

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------------ ------------
1996 1995 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Business Equipment Financing 22% 25% 23%
Transportation and Industrial Financing 25 25 26
Fleet Services 12 12 11
Municipal and Corporate Financing 21 19 20
Real Estate Financing 8 9 8
Rail Services 12 10 12
--- --- ---

Total 100% 100% 100%
=== === ===
</TABLE>

PART II - OTHER INFORMATION

Item 5. The following information is being provided in lieu of filing a Form 8K:

For the purposes of Item 2 of Form 8K, the information contained
in the second paragraph of Recent Developments on page 7 is
incorporated herein by reference.

For purposes of Item 5 of Form 8K, the information contained in
Recent Developments beginning on page 7 is incorporated herein
by reference.

For purposes of Item 7 of Form 8K, the following unaudited
ProForma Condensed Consolidated Financial Statements are filed
with this report:

<TABLE>
<S> <C>
ProForma Condensed Consolidated Balance Sheet as of June 30, 1996 Page 14
ProForma Condensed Consolidated Statements of Income:
Year-end December 31, 1995 Page 15
Six months ended June 30, 1996 Page 16
</TABLE>

The ProForma Condensed Consolidated Balance Sheet of
Registrant as at June 30, 1996 reflects the financial position of
the Registrant after giving effect to the disposition of the
assets of the Fleet Services business unit, the Rail Services
business unit, the Transportation and Industrial Financing
business unit, the Business Equipment Financing business unit and
the Corporate Financing division described in Recent Developments
and assumes the dispositions took place on June 30, 1996. The
ProForma Condensed Consolidated Statements of Income for the
year-ended December 31, 1995 and six months ended June 30, 1996
assumed that the dispositions occurred on January 1, 1995, and
are based on the operations of the Registrant for the year-ended
December 31, 1995, and six months ended June 30, 1996. Such
ProForma Financial Statements also reflect the use of the
proceeds to repay commercial paper, offset long-term debt with
advances to affiliates, pay taxes, and invest in short-term debt.

11
<PAGE> 12
The unaudited ProForma Condensed Consolidated Financial
Statements have been prepared by Registrant based upon
assumptions deemed proper by it. The unaudited ProForma
Condensed Consolidated Financial Statements presented here are
shown for illustrative purposes only and are not necessarily
indicative of the future financial position or future results
of operations of Registrant that would have actually occurred
had the transaction been in effect as of the date or for the
periods presented. In addition, it should be noted that the
Registrant's financial statements will reflect the dispositions
only from the actual closing dates.

The unaudited ProForma Condensed Consolidated Financial
Statements should be read in conjunction with the historical
financial statements and related notes of Registrant.

Item 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
4.1 Copy of First Supplemental Indenture dated as of July 31,
1996, to Indenture dated as of July 1, 1991, between the
Company, Ford Motor Credit Company and The First
National Bank of Chicago as Trustee.

4.2 Copy of First Supplemental Indenture dated as of July 31,
1996, to Indenture dated as of November 15, 1994, between
the Company, Ford Motor Credit Company and The Chase
Manhattan Bank as Trustee.

4.3 Copy of Third Supplemental Indenture dated as of July 31,
1996, to Indenture dated as of January 15, 1986, between
the Company, Ford Motor Credit Company and The Chase
Manhattan Bank as Trustee.

10.1 Copy of Asset Purchase Agreement dated as of May 22, 1996
by and between First Union Rail Corporation and the Company.

10.2 Copy of Asset Purchase Agreement dated as of June 19, 1996
by and between Associates Commercial Corporation and the
Company.

12. Computation of ratio of earnings to fixed charges.

27. Financial Data Schedule

(b) Reports on Form 8-K.

The registrant filed the following report on Form 8K: On or about
July 1, 1996, the Registrant reported under

Item 2 - The completion of the sale of the Registrant's
Fleet Services business unit to Associates Commercial
Corporation, a subsidiary of Associates First Capital
Corporation.

Item 5 - With Ford's stated intention to sell the Registrant's
businesses separately, Ford and the Registrant
announced an agreement to sell the assets of its Rail
Services business to First Union Corp. In addition, it
was reported that the Registrant had begun selling off
portions of its Corporate Financing division of the
Municipal and Corporate Financing business unit and
expected to complete the sale of substantially all of
its assets by the end of August. It also was reported
that the Registrant had commenced a consent
solicitation seeking the consent of the Registrant's
bond holders to changes to certain provisions of the
debt agreements covering $3.2 billion of the
Registrant's long-term debt.

Item 7 - ProForma financial statements giving effect to the
disposition of the Fleet Services business unit
discussed in Item 2 and the Rail Services business unit
and Corporate Financing division described in Item 5.

12
<PAGE> 13
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.

USL CAPITAL CORPORATION

August 14, 1996 By: /s/ Joseph J. Mahoney
- ------------------------ -----------------------
Date Joseph J. Mahoney
Senior Vice President and
Chief Financial Officer

August 14, 1996 By: /s/ Robert A. Keyes, Jr.
- ------------------------ --------------------------
Date Robert A. Keyes, Jr.
Vice President, Corporate Controller

13
<PAGE> 14
PRO FORMA FINANCIAL INFORMATION

USL Capital Corporation and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet at June 30, 1996
(Unaudited)
(Dollars in Thousands)

<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
---------- ------------------------------- ----------
HISTORICAL SOLD PRO-FORMA
BALANCES DIVISIONS (a) OTHER RESULTS
---------- ------------------------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 12,087 $ (4,196) $ 7,891
Investment in finance leases 2,571,770 (2,519,332) 52,438
Notes receivable 1,388,480 (897,767) 490,713
Investment in operating leases 975,453 (975,453) 0
Investment in leveraged leases 443,394 (443,394) 0
Investment in securities 998,309 (987,969) 10,340
Notes receivable from affiliates 0 0 $ 3,844,508 (b) 3,844,508
Other assets 190,821 (110,308) (4,564)(c) 75,949
Goodwill 174,712 (14) (174,698)(d) 0
---------- ----------- ----------- ----------

Total assets $6,755,026 $(5,938,433) $ 3,665,246 $4,481,839
========== =========== =========== ==========

LIABILITIES AND
SHAREHOLDER'S EQUITY
Short-term notes payable $1,775,234 $(1,775,234)(e)
Accounts payable, accrued
liabilties, lease deposits and
payable to Ford & affiliates 230,355 $ (101,195) (2,257)(f) $ 126,903
Deferred taxes on income 580,820 (579,299) 1,521
Long-term debt 3,254,334 (9,817) 3,244,517
---------- ----------- ----------- ----------

Total liabilties 5,840,743 (690,311) (1,777,491) 3,372,941
Shareholder's equity 914,283 194,615 1,108,898
---------- ----------- ----------- ----------

Total liabilties and
shareholder's equity $6,755,026 $ (690,311) $(1,582,876) $4,481,839
========== =========== =========== ==========
</TABLE>

(a) To eliminate the assets and liabilities included in the balance sheet of
the Company's Fleet Services business unit, Rail Services business unit,
Corporate Financing division, Business Equipment Financing business unit,
and Transportation and Industrial Financing business unit as of June 30,
1996.

(b) To reflect the lending to Ford Credit and other affiliates of net proceeds
remaining after paying down commercial paper and paying taxes.

(d) To reflect the write off of goodwill associated with the sold assets.

(e) To reflect the repayment of commercial paper.

(f) To reflect payment of current taxes related to the asset sales.

14
<PAGE> 15
PRO FORMA FINANCIAL INFORMATION

USL Capital Corporation and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income
For the Year Ended December 31, 1995
(Unaudited)
(Dollars in Thousands)

<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
--------------- --------------------------- ---------
HISTORICAL SOLD PRO-FORMA
BALANCES DIVISIONS (a) OTHER (b) RESULTS
--------------- --------------------------- ---------
<S> <C> <C> <C> <C>
REVENUES $678,926 $(630,440) $224,672 $273,158
-------- --------- -------- --------

EXPENSES
Sales, administrative and general 65,300 (62,853) 2,447
Interest 276,915 (262,254) 181,383 196,044
Depreciation - operating lease 116,752 (116,752) 0
Other 24,220 (27,236) (3,016)
-------- --------- -------- --------

Total expenses 483,187 (469,095) 181,383 195,475
-------- --------- -------- --------

Income before taxes on income 195,739 (161,345) 43,289 77,683
Taxes on income 60,744 (45,981) 16,896 31,659
-------- --------- -------- --------

NET INCOME $134,995 $(115,364) $ 26,393 $ 46,024
======== ========= ======== ========
</TABLE>

(a) To eliminate the profit and loss of Fleet Services, Rail Services,
Corporate Financing, Business Equipment Financing, and Transportation and
Industrial Financing for the entire period.

(b) To reflect interest income from notes to affiliates, the reversal of
interest expense on the commercial paper effective January 1, 1995, and
the related tax effect thereon.

15
<PAGE> 16
PRO FORMA FINANCIAL INFORMATION

USL Capital Corporation and Subsidiaries
Pro Forma Condensed Consolidated Statement of Income
For the Six Months Ended June 30, 1996
(Unaudited)
(Dollars in Thousands)

<TABLE>
<CAPTION>
PRO-FORMA ADJUSTMENTS
---------- -------------------------- ----------
HISTORICAL SOLD PRO-FORMA
BALANCES DIVISIONS (a) OTHER (b) RESULTS
---------- -------------------------- ----------
<S> <C> <C> <C> <C>
REVENUES $379,709 $(356,156) $124,289 $147,842
-------- --------- -------- --------

EXPENSES
Sales, administrative and general 35,912 (34,565) 1,347
Interest 153,772 (150,634) 106,926 110,064
Depreciation - operating lease 65,545 (65,545) 0
Other 13,979 (14,198) (219)
-------- --------- -------- --------

Total expenses 269,208 (264,942) 106,926 111,192
-------- --------- -------- --------

Income before taxes on income 110,501 (91,214) 17,363 36,650
Taxes on income 30,053 (21,891) 6,777 14,939
-------- --------- -------- --------

NET INCOME $ 80,448 $ (69,323) $ 10,586 $ 21,711
======== ========= ======== ========
</TABLE>

(a) To eliminate the profit and loss of Fleet Services, Rail Services,
Corporate Financing, Business Equipment Financing, and Transportation and
Industrial Financing for the entire period.

(b) To reflect interest income from notes to affiliates, the reversal of
interest expense on the commercial paper effective January 1, 1995, and
the related tax effect thereon.

<PAGE> 1
EXHIBIT 4.1

USL CAPITAL CORPORATION,

FORD MOTOR CREDIT COMPANY

AND

THE FIRST NATIONAL BANK OF CHICAGO

as Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of July 31, 1996

INDENTURE

Dated as of July 1, 1991

<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of the 31st day of
July, 1996 (the "First Supplemental Indenture"), between USL CAPITAL
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter sometimes referred to as the "Company"), FORD
MOTOR CREDIT COMPANY, a corporation duly organized and existing under the laws
of the State of Delaware (hereinafter sometimes referred to as "Ford Credit"),
and THE FIRST NATIONAL BANK OF CHICAGO, a national banking association, as
trustee (the "Trustee") under the Indenture dated as of July 1, 1991 between the
Company and the Trustee (the "Indenture"). All terms used and not defined herein
are used as defined in the Indenture.

WHEREAS, in accordance with Article Nine of the Indenture (a)
the Trustee, the Company and the Holders of a majority in principal amount of
each series of Securities Outstanding under the Indenture have agreed to amend
Article Eight and Article Ten of the Indenture as provided herein and (b) the
Trustee, the Company and Ford Credit have agreed to provide for the addition of
Ford Credit as a co-obligor with the Company under the Indenture; and

WHEREAS, the Company desires and has requested the Trustee to
join with it in the execution and delivery of this First Supplemental Indenture,
and all requirements necessary to make this First Supplemental Indenture a valid
instrument, in accordance with its terms, have been performed and fulfilled, and
the execution and delivery hereof have been in all respects duly authorized;

NOW THEREFORE, the Company and Ford Credit covenant and agree
with the Trustee as follows:

SECTION 1. Addition of Ford Credit as a Co-Obligor. (a) Ford
Credit hereby agrees that it shall be jointly and severally liable with the
Company for (i) the due and punctual payment of the principal, premium (if any),
interest and additional amounts (if any), with respect to all Securities issued
under the Indenture, according to their tenor; and (ii) except as otherwise
specifically provided in this First Supplemental Indenture, the due and punctual
performance of all of the covenants and obligations of the Company under the
Securities and the Indenture.

(b) From and after the date hereof, Ford Credit shall be
entitled to exercise every right and power of the Company under the Securities
and the Indenture.

(c) From and after the date hereof, except as otherwise
specifically provided in this First Supplemental Indenture, all references in
the Indenture and the Securities to "the Company" shall be deemed to refer to
and include "Ford Credit" as well, with the same effect as if Ford Credit had
been named together with the Company therein; provided, however, that, subject
to Section 4 of this First Supplemental Indenture, all references to "the
Company" in Section 501 of the Indenture shall be deemed to be references to
"the Company or Ford Credit".
<PAGE> 3

(d) From and after the date hereof, any certificate, notice or
request (including any Company Request or Company Order) required to be
furnished by the Company under the Indenture, may be furnished by the
appropriate officers of the Company or Ford Credit; provided, however, that any
Officers' Certificate or Board Resolution required to be furnished by the
Company under the Indenture shall be provided by both the Company and Ford
Credit, unless the Trustee shall agree that such Officers' Certificate or Board
Resolution may be provided by either of the Company or Ford Credit.

SECTION 2. Amendments to Section 101. (a) Section 101 of the
Indenture is hereby amended by adding thereto the following definitions in the
appropriate alphabetical order:

"'Ford Credit' means Ford Motor Credit Company, a corporation
duly organized and existing under the laws of the State of Delaware and
an indirect wholly-owned subsidiary of Ford Motor Company."

"'Restricted Subsidiary' means a corporation, a majority of
the outstanding voting stock of which is owned, directly or indirectly,
by Ford Credit or by any one or more subsidiaries of Ford Credit, or by
Ford Credit and one or more subsidiaries of Ford Credit, organized and
existing under the laws of the United States of America or the District
of Columbia or conducting the major portion of its business in the
United States of America, any of the activities of which includes
insurance underwriting or which had, at the end of its last quarterly
accounting period preceding the date of computation, assets with a
value in excess of $1,000,000 (net of the amount of any related
unearned income) representing accounts or notes receivable resulting
from the financing of new cars, trucks, tractors and farm and
industrial equipment manufactured or sold by Ford Motor Company or from
the financing of used cars, trucks, tractors and farm and industrial
equipment of the same types, whether manufactured by Ford Motor Company
or by others.

As used in this definition of Restricted Subsidiary only, the
term 'voting stock' means stock having ordinary voting power to elect a
majority of the directors irrespective of whether or not stock of any
other class or classes shall have or might have voting power by reason
of the happening of any contingency."

(b) The definition of "Subsidiary" in the Indenture is hereby
replaced with the following definition:

"'Subsidiary' with respect to any Person means a corporation,
partnership, trust or unincorporated organization
<PAGE> 4

(i) organized under the laws of the United States,
Puerto Rico or Canada or a jurisdiction thereof;

(ii) which conducts substantially all of its business
and has substantially all of its Property within the United
States, Puerto Rico and Canada; and

(iii) at least a majority (by number of votes) of the
Voting Stock and a majority of each other class of stock and
equity securities of which are legally and beneficially owned
by such Person and/or a corporation, partnership, trust or
unincorporated organization meeting requirements (i) and (ii)
above, all of the equity securities of which (except
director's qualifying shares) such Person owns directly or
through another similar wholly-owned Subsidiary.".

(c) All references to "the Company" in the definitions of "the
Company", "Junior Subordinated Indebtedness", "Senior Subordinated Indebtedness"
and "Superior Indebtedness" shall not be deemed to refer to or include Ford
Credit.

(d) All references to "the Company" in the definitions of
"Board of Directors", "Board Resolution" and "Officers' Certificate" shall be
deemed to refer to "the Company or Ford Credit, as the case may be,".

(e) The reference to "the Company" in the definition of "Lien"
shall be deemed to refer to "each of the Company and Ford Credit".

SECTION 3. Amendment to Section 105. Section 105 of the
Indenture is hereby amended by replacing Clause 2 thereof with the following:

"(2) the Company or Ford Credit by the Trustee or by any
Holder shall be sufficient for every purpose hereunder (unless
otherwise expressly herein provided) if in writing and mailed,
first-class postage prepaid, to the Company or Ford Credit, as the case
may be, and addressed as follows: Ford Motor Credit Company, The
American Road, Dearborn, Michigan 48121, Attention: Treasurer.".

SECTION 4. Application of the Cross-Acceleration Provision in
Article Five of the Indenture. Section 501(5) of the Indenture shall not apply
to Ford Credit.

SECTION 5. Amendment to Article Eight. Article Eight is hereby
amended by adding the following new Section 804 thereto:

"SECTION 804. Application of Article Eight to the Company. If and so
long as Ford Credit is a co-obligor with respect to Securities issued
under this Indenture, the
<PAGE> 5

provisions of this Article Eight shall not apply to the Company, and
the Company shall be relieved of all of its obligations under this
Article Eight; provided, however, that such provisions shall apply to
Ford Credit.".

SECTION 6. Amendments to Article Ten of the Indenture. (a)
Section 1007 shall not apply to Ford Credit.

(b) Article Ten of the Indenture is hereby amended by adding
the following new Section 1011 thereto:

"Section 1011. Limitation on Liens -- Ford Credit.

Except as hereinbelow in this Section provided and for so
long as Ford Credit is a co-obligor under this Indenture, Ford Credit
will not at any time, and will not permit any Restricted Subsidiary at
any time to, pledge or otherwise subject to any lien (any such pledge
or lien being hereinafter in this Section called a "Mortgage") any of
its property or assets without thereupon expressly securing the due and
punctual payment of the principal of (and premium, if any, on) and the
interest on the Securities equally and ratably with (or prior to) any
and all other obligations and indebtedness secured by such Mortgage, so
long as any such other obligations and indebtedness shall be so
secured, and Ford Credit covenants that if and when any such Mortgage
is created, the Securities will be so secured thereby; provided,
however, that this limitation shall not apply to Mortgages securing
indebtedness the aggregate amount of which at any one time outstanding
shall not exceed $5,000,000; and, provided, further, that this
limitation shall not apply to:

(1) Mortgages securing indebtedness incurred by Ford Credit or
any Restricted Subsidiary in connection with the exporting of goods to
or between, or the marketing thereof in, countries outside the United
States, in connection with which Ford Credit or such Restricted
Subsidiary shall have the right, in accordance with customary and
established banking practice, to deposit, or otherwise subject to a
lien, cash, securities or receivables, for the purpose of securing
banking accommodations or as the basis for the issuance of bankers'
acceptances or in aid of other similar borrowing arrangements;

(2) Mortgages on accounts receivable payable in foreign
currencies securing indebtedness incurred and payable outside the
United States;

(3) Mortgages in favor of Ford Credit or any Restricted
Subsidiary;
<PAGE> 6

(4) Mortgages in favor of any governmental body to secure
progress, advance or other payments pursuant to any contract or
provision of any statute or deposits with any governmental body
required by statute or regulation in connection with the conduct of the
business of Ford Credit or any Restricted Subsidiary;

(5) deposits of assets of Ford Credit or any Restricted
Subsidiary with any surety company or clerk of any court, or in escrow,
as collateral in connection with, or in lieu of, any bond on appeal by
Ford Credit or any Restricted Subsidiary from any judgment or decree
against it, or in connection with other proceedings in actions at law
or in equity by or against Ford Credit or any Restricted Subsidiary;

(6) Mortgages on any property, tangible or intangible, real or
personal, existing at the time of acquisition of such property
(including acquisition through merger or consolidation) or to secure
the payment of all or any part of the purchase price thereof or to
secure any indebtedness incurred prior to, at the time of, or within 60
days after, the acquisition thereof for the purpose of financing all or
any part of the purchase price thereof; and

(7) any extension, renewal or replacement (or successive
extensions, renewals or replacements), as a whole or in part, of any
Mortgage or Mortgages referred to in the foregoing subsections (1) to
(6) inclusive; provided, however, that such extension, renewal or
replacement Mortgage shall be limited to all or part of the same
property that secured the Mortgage or Mortgages extended, renewed or
replaced (plus improvements on such property).".

SECTION 7. Conditions of Effectiveness. This First
Supplemental Indenture shall become effective upon satisfaction of the following
conditions:

(a) the Trustee shall have received the written consent of the
Holders of a majority in principal amount of each series of Securities
Outstanding under the Indenture; and

(b) duly executed counterparts hereof shall have been signed
by the Trustee, the Company and Ford Credit.

SECTION 8. Governing Law. This First Supplemental Indenture
shall be governed by and construed in accordance with the laws of the State of
California.
<PAGE> 7

SECTION 9. Miscellaneous. (a) The Indenture, as supplemented
by this First Supplemental Indenture, is in all respects ratified and confirmed
by each of the Company, Ford Credit and the Trustee, and this First Supplemental
Indenture shall be deemed part of the Indenture in the manner and to the extent
herein and therein provided.

(b) The recitals herein contained are made by the Company and
Ford Credit and not by the Trustee, and the Trustee assumes no responsibility
for the correctness thereof. The Trustee makes no representation as to the
validity or sufficiency of this First Supplemental Indenture, except that the
Trustee represents that it is duly authorized to execute and deliver this First
Supplemental Indenture and perform its obligations hereunder.

(c) This First Supplemental Indenture may be executed in any
number of counterparts each of which shall be an original; but such counterparts
shall together constitute but one and the same instrument.

IN WITNESS WHEREOF, each of USL CAPITAL CORPORATION and FORD
MOTOR CREDIT COMPANY has caused this First Supplemental Indenture to be duly
signed and acknowledged by its Chairman of the Board or its President or an
Executive Vice President or a Vice President or its Treasurer or its Assistant
Treasurer or its Secretary or its Assistant Secretary thereunto duly authorized,
its corporate seal to be affixed hereunto, and the same to be attested by its
Secretary or an Assistant Secretary; and THE FIRST
<PAGE> 8

NATIONAL BANK OF CHICAGO has caused this First Supplemental Indenture to be duly
signed and acknowledged by one of its Vice Presidents or Assistant Vice
Presidents thereunto duly authorized, and its corporate seal to be affixed
hereunto, and the same to be attested by its Assistant Vice President or an
Assistant Secretary.

USL CAPITAL CORPORATION

By /s/ J.J. Mahoney
------------------------
Name: Joseph J. Mahoney
Title: Senior Vice President -- Chief
Attest: Financial Officer

/s/ Nancy E. Fraser
- ---------------------
Name: Nancy E. Fraser
Title: Assistant Secretary

FORD MOTOR CREDIT COMPANY

By /s/ Hurley D. Smith
------------------------
Name: Hurley D. Smith
Title: Secretary

Attest:

/s/ R.P. Conrad
- ---------------------
Name: R.P. Conrad
Title: Assistant Secretary

THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee

By /s/ Steven M. Wagner
------------------------
Name: Steven M. Wagner
Title: Vice President

Attest:
/s/ illegible
- ---------------------
Name:
Title:
<PAGE> 9
STATE OF CALIFORNIA )
) ss.:
COUNTY OF SAN FRANCISCO) July 30, 1996

On the 30th day of July, in the year one thousand nine hundred
ninety-six, before me personally came J.J. Mahoney to me known, who, being by me
duly sworn, did depose and say that he resides at 733 Front Street, San
Francisco, CA 94111; that he is CFO of USL CAPITAL CORPORATION, one of the
corporations described in and which executed the above instrument; that he knows
the corporate seal of said corporation; that the seal affixed to the said
instrument is such corporation seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that he signed his name thereto by
like authority.

/s/ N. Kassiants
-----------------
NOTARY PUBLIC

MY COMMISSION EXPIRES

- -------------------------------------------------
NINA KASSIANTS
COMM. # 1027358
[Notary Seal Logo] Notary Public - California
SAN FRANCISCO COUNTY
My Comm. Expires May 22, 1998
- -------------------------------------------------
<PAGE> 10

STATE OF MICHIGAN)
) ss.:
COUNTY OF WAYNE ) July 29, 1996

On the 29th day of July, in the year one thousand nine hundred
ninety-six, before me personally came Hurley D. Smith to me known, who, being by
me duly sworn, did depose and say that he resides at 8205 Valleyview, Clarkston,
MI 48348; that he is the Secretary of FORD MOTOR CREDIT COMPANY, one of the
corporations described in and which executed the above instrument; that he knows
the corporate seal of said corporation; that the seal affixed to the said
instrument is such corporation seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that he signed his name thereto by
like authority.

/s/ Gwendolyn A. McGowan
------------------------
NOTARY PUBLIC

MY COMMISSION EXPIRES

----------------------------------
[Notary Seal]
GWENDOLYN A. MCGOWAN
Notary Public, Wayne County, MI
My Commission Expires July 6, 2000
----------------------------------
<PAGE> 11
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK ) July 31, 1996

On the 31st day of July, in the year one thousand nine hundred
ninety-six, before me personally came Steven M. Wagner to me known, who, being
by me duly sworn, did depose and say that he resides at 912 Winslow Circle, Glen
Ellyn, IL 60137, that he is a Vice President of THE FIRST NATIONAL BANK OF
CHICAGO, one of the corporations described in and which executed the above
instrument; that he knows the corporate seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so affixed by
authority of the Board of Directors of said corporation and that he signed his
name thereto by like authority.

/s/ Somsri Helmer
------------------
NOTARY PUBLIC

MY COMMISSION EXPIRES

---------------------------------
OFFICIAL SEAL
SOMSRI HELMER
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISSION EXPIRES: 01/14/99
---------------------------------

<PAGE> 1
EXHIBIT 4.2

USL CAPITAL CORPORATION,

FORD MOTOR CREDIT COMPANY

AND

THE CHASE MANHATTAN BANK

as Trustee

FIRST SUPPLEMENTAL INDENTURE

Dated as of July 31, 1996

INDENTURE

Dated as of November 15, 1994
<PAGE> 2
FIRST SUPPLEMENTAL INDENTURE, dated as of the 31st day of
July, 1996 (the "First Supplemental Indenture"), between USL CAPITAL
CORPORATION, a corporation duly organized and existing under the laws of the
State of Delaware (hereinafter sometimes referred to as the "Company"), FORD
MOTOR CREDIT COMPANY, a corporation duly organized and existing under the laws
of the State of Delaware (hereinafter sometimes referred to as "Ford Credit"),
and THE CHASE MANHATTAN BANK, a New York banking corporation, as trustee (the
"Trustee") under the Indenture dated as of November 15, 1994 between the Company
and the Trustee (the "Indenture"). All terms used and not defined herein are
used as defined in the Indenture.