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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
------------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996.
COMMISSION FILE NUMBER 1-4976
(LOGO)
USL CAPITAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware
(STATE OF INCORPORATION)
The American Road, Rm. 1182
Dearborn, Michigan
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
94-1360891
(I.R.S. EMPLOYER IDENTIFICATION NO.)
48121
(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (313) 322-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS
-------------------
8 3/4% Senior Notes due 2001
NAME OF EACH EXCHANGE ON WHICH REGISTERED
-----------------------------------------
American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. NA
--
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 March 31, 1997, 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
J(1)(a) AND (b), AND IS THEREFORE FILING THIS FORM 10-K WITH REDUCED DISCLOSURE
FORMAT.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I
PAGE
-----
Item 1. Business..................................................................... 3
Item 2. Properties................................................................... 4
Item 3. Legal Proceedings............................................................ 4
Item 4. Submission of Matters to a Vote of Security Holders*......................... 4
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder Matters........ 4
Item 6. Selected Financial Data*..................................................... 4
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 5
Item 8. Financial Statements and Supplementary Data.................................. 5
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................................... 5
PART III
Item 10. Directors, Executive Officers, Promoters, and Control Persons of the Company*
Item 11. Executive Compensation*
Item 12. Security Ownership of Certain Beneficial Owners and Management*
Item 13. Certain Relationships and Related Transactions*
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 6
Signatures.............................................................................. 9
Exhibits Index.......................................................................... 29
</TABLE>
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* Not required under General Instruction J to Form 10-K.
2
<PAGE>
USL CAPITAL CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 1996
PART I
ITEM 1. BUSINESS
Prior to the sale of substantially all of USL Capital Corporation's ("USL"
or the "Company") operating assets (described in more detail below), USL was a
diversified financing company. USL provided a wide range of financing services,
primarily in the United States, through six core business units, including:
Business Equipment Financing -- leasing and financing of office
and other business and commercial equipment directly with
customers and through vendor programs;
Transportation and Industrial Financing -- leasing and financing
of large-balance transportation equipment (principally commercial
aircraft) and industrial and energy facilities;
Fleet Services -- leasing and managing of commercial automobile,
van, and truck fleets;
Municipal and Corporate Financing -- financing of essential-use
equipment for state and local governments and housing bonds, and
investing in publicly traded and privately placed preferred
stocks and senior and subordinated debt of public and private
companies;
Real Estate Financing -- mortgage financing of income-producing
real estate, including apartments, office buildings, shopping
centers, and warehouses; and
Rail Services -- full-service leasing of railroad equipment to
industrial shippers and railroads.
USL, a Delaware corporation, has been a wholly-owned subsidiary of Ford
Holdings, Inc. ("Ford Holdings") since October 1, 1989, on which date all of
USL's capital stock was transferred by Ford Motor Company ("Ford") to Ford
Holdings, a then newly-formed Delaware corporation. All of the outstanding
common stock of Ford Holdings is owned directly or indirectly by Ford. USL was
originally organized as a California corporation in October 1956, and was
purchased by Ford in November 1987. USL changed its name to USL Capital
Corporation from United States Leasing International, Inc. on November 12, 1993.
In May 1996, Ford announced that it was pursuing the sale of USL's
businesses and expected to complete the sale of operating assets representing a
majority of USL's current lines of business during 1996. By the end of 1996, USL
had completed the sale of substantially all of its consolidated operating
assets; all personnel were separated at the close of December 31, 1996. On a
going-forward basis, any remaining operating assets and obligations of USL will
be managed by Ford affiliates, primarily Ford Credit.
See Note 2 of the Notes to Consolidated Financial Statements on Page 16
for details of the sales transactions.
3
<PAGE>
ITEM 2. PROPERTIES
USL owns no significant real property other than repossessed collateral.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings, other than ordinary routine
litigation incidental to USL's previous businesses, to which USL is a party or
to which its property is subject, nor are any such proceedings known to be
contemplated by governmental authorities or others.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The information called for by this item has been omitted pursuant to
General Instruction J(2)(c).
PART II
ITEM 5. MARKET FOR USL'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
All outstanding shares of USL's Common Stock are owned by Ford Holdings,
and therefore there is no market for such shares. USL declared a $40 million
dividend effective December 31, 1995 which was distributed to Ford Holdings in
January 1996. Ford Holdings made a $40 million capital contribution to USL in
1993. USL and Ford Holdings will, from time to time, determine the appropriate
capitalization for USL, which will, in part, affect any future payment of
dividends to Ford Holdings or capital contributions to USL.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item has been omitted pursuant to
General Instruction J(2)(a).
4
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Pursuant to General Instruction J(2)(a), the following narrative analysis
of the results of operations is presented in lieu of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
RESULTS OF OPERATIONS
Recent Developments
During 1996, USL completed the sale of substantially all of its
consolidated operating assets for proceeds totaling $6.9 billion. These
transactions resulted in a gain of $269 million before taxes and $100 million
after taxes, including a write-off of $126 million of goodwill. The sale of each
of the Company's previous six business units is described in detail in Note 2
of the Notes to Consolidated Financial Statements on Page 16.
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.
The Company used the proceeds from its sales of assets to (1) pay down
related liabilities, (2) repay all outstanding short-term borrowings and (3)
loan $3.2 billion to Ford Credit. The remaining excess funds, approximately $975
million at September 30, 1996, were loaned to Ford Holdings. At December 31,
1996, the notes receivable balances for Ford Credit and Ford Holdings were $3.0
billion and $1.0 billion, respectively. As a result of the sales of the
Company's operating assets, and the fact that the Company does not intend to
incur any additional third party debt, the Company canceled all existing bank
lines, effective August 2, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are
listed in Item 14 of Part IV on page 6, are set forth in detail at the end of
this report, and are filed as part hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information called for by Items 10, 11, 12, and 13 has been omitted
pursuant to General Instruction J(2)(c).
5
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The consolidated financial statements of USL are included in this
report at the pages indicated.
<TABLE>
<CAPTION>
Page
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<S> <C>
Report of Independent Accountants 10
Consolidated Statements of Income for the years ended December
31, 1996, 1995 and 1994 11
Consolidated Balance Sheets at December 31, 1996 and 1995 12
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995, and 1994 13
Consolidated Statements of Changes in Shareholder's Equity for
the years ended December 31, 1996, 1995, and 1994 14
Notes to Consolidated Financial Statements 15
(a)2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts 28
Financial statements and schedules other than those listed above
are omitted because the required information is included in the
financial statements or the notes thereto or because of the
absence of conditions under which they are required.
(a)3. Exhibits required by Item 601 of Regulation S-K:
</TABLE>
<TABLE>
<S> <C>
(3)A. Copy of the Certificate of Incorporation of United States Leasing
International, Inc., a Delaware Corporation filed with the Secretary of
State of the State of Delaware on August 15, 1986, and filed as Exhibit
3(A) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by this reference.
B. Copy of the Agreement of Merger pursuant to which United States Leasing
International, Inc., a California corporation, merged into United States
Leasing International, Inc., a Delaware corporation, filed with the
Secretary of State of the State of Delaware on October 27, 1986, and filed
as Exhibit 3(B) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated hereby by this reference.
C. Copy of the Certificate of Amendment of Certificate of Incorporation of
United States Leasing International, Inc., pursuant to which United States
Leasing International, Inc. changed its name to USL Capital Corporation
filed with the Secretary of State of the State of Delaware on November 12,
1993, and filed as Exhibit 3(C) to the Company's Annual Report on Form
10-K for the year ended December 31, 1993, is incorporated herein by this
reference.
D. Copy of Bylaws, as amended, through April 28, 1995, and filed as Exhibit
3(D) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by this reference.
(4)A. Copy of Indenture dated as of January 15, 1986, between the Company and
The Chase Manhattan Bank (National Association), Trustee, including forms
of Debt Security and Medium Term Note, filed as Exhibit (4)A to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by this reference.
B. Copy of Supplemental Indenture dated as of October 27, 1986, between the
Company and The Chase Manhattan Bank (National Association), Trustee,
filed as Exhibit (4)B to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, is incorporated herein by this reference.
C. Copy of Second Supplemental Indenture dated as of December 1, 1988, to
Indenture dated as of January 15, 1986, between the Company and The Chase
Manhattan Bank (National Association), Trustee, filed as Exhibit (4)C to
the Company's Annual Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by this reference.
D. Copy of Third Supplemental Indenture dated as of July 31, 1996, to Indenture
dated as of January 15, 1986, between the Company and The Chase Manhattan
Bank (National Association,) Trustee.
-6-
<PAGE>
E. Copy of Indenture dated as of July 1, 1991, between the Company and The
First National Bank of Chicago, Trustee, including forms of Debt Security
and Medium Term Note, filed on July 15, 1991, as Exhibits 4.1, 4.2, and
4.3, respectively, to the Company's Registration Statement on Form S-3
(File No. 33-4165) is incorporated herein by this reference.
F. Copy of Supplemental Indenture dated as of July 31, 1996 to Indenture dated
as of July 1, 1991, between the Company and The First National Bank of Chicago.
Trustee.
G. Copy of the Indenture dated as of November 15, 1994, between the Company
and The Chase Manhattan Bank (National Association), Trustee, including
forms of Debt Security and Medium Term Note, filed on December 13, 1994,
as Exhibits 4.1, 4.2 and 4.3, respectively, to the Company's Registration
Statement on Form S-3 (File No. 33-56839) is incorporated herein by this
reference.
H. Copy of Supplemental Indenture dated as of July 31, 1996 to Indenture dated
as of November 15, 1994, between the Company and the Chase Manhattan Bank
(National Association), Trustee.
(23) Consent of Independent Public Accountants (with respect to the Company's
current Registration Statement on Form S-3).
</TABLE>
USL agrees to furnish to the Commission upon request a copy of each
instrument with respect to issues of long-term debt of USL.
(b) Reports on Form 8-K
USL filed the following reports on Form 8-K during the quarter
ended December 31, 1996:
On July 1, 1996, the Registrant filed a Form 8-K reporting the
sale of its Fleet Services and Rail Service business units. The
Form 8-K also reported that the Registrant had commenced a
consent solicitation seeking the consent of its bondholders to
changes to certain provisions of the debt agreements covering
$3.2 billion of the Registrant's long-term debt. The changes in
the debt agreements were being sought to allow the Registrant to
sell its assets without the purchasers of such assets having to
assume the debt and to facilitate Ford Credit becoming a
co-obligor with the Registrant on the debt. The Form 8-K included
a ProForma Condensed Consolidated Balance Sheet of the Registrant
as of March 31, 1996 and ProForma Condensed Consolidated
Statements of Income for the Registrant for the year-ended
December 31, 1995 and three-months ended March 31, 1996.
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<PAGE>
On September 20, 1996, the Registrant filed a Form 8-K reporting
the sale of (i) substantially all of its Transportation and
Industrial Financing unit; (ii) its Business Equipment Financing
unit; (iii) its Real Estate Financing unit; and (iv) certain of
the assets in its Municipal and Corporate Financing unit. The
Form 8-K included a ProForma Condensed Consolidated Balance Sheet
of the Registrant as of June 30, 1996 and ProForma Condensed
Consolidated Statements of Income for the Registrant for the
year-ended December 31, 1995 and six-months ended June 30, 1996.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on April 4, 1997.
USL CAPITAL CORPORATION
By: /s/F. Bruce Kulp
------------------------
F. Bruce Kulp, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
(a) Principal Executive Officer
/s/F. Bruce Kulp Chairman April 4, 1997
- ---------------------------------
(b) Principal Financial Officer
and Principal Accounting Officer
/s/Eric A. Law Vice President - Controller April 4, 1997
- ---------------------------------
(c) Directors
/s/F. J. Brogan April 4, 1997
- --------------------------------
/s/Elizabeth S. Acton April 4, 1997
- --------------------------------
/s/F. Bruce Kulp April 4, 1997
- --------------------------------
</TABLE>
-9-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder
USL Capital Corporation
We have audited the consolidated balance sheet of USL Capital Corporation
and Subsidiaries at December 31, 1996 and 1995, and the related consolidated
statements of income, shareholder's equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of USL Capital
Corporation and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND L.L.P
Coopers & Lybrand L.L.P.
400 Renaissance Center
Detroit, Michigan 48243
April 3, 1997
-10-
<PAGE>
USL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Interest income from Ford and affiliates $ 82,571 $ - $ -
Interest expense on long-term debt 68,281 - -
-------- -------- --------
Income from continuing activities before taxes on income 14,290 - -
Taxes on income 5,002 - -
-------- -------- --------
Income from continuing activities 9,288 - -
Income from discontinued operations net
of income tax (Note 3) 80,661 134,995 109,013
Gain from sale of business units net of
income tax (Note 2) 99,642 - -
======== ========= =========
Net income $189,591 $ 134,995 $ 109,013
======== ========= =========
See notes to consolidated financial statements
</TABLE>
-11-
<PAGE>
USL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
1996 1995
------- --------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents: $ 2,774 $ 11,474
Investment in associated companies 13,341 -
Other assets 6,147 8,173
-------- ----------
22,262 19,647
Assets of discontinued business
Investment in finance leases - net 6,951 2,548,944
Notes receivable - 1,039,597
Investment in operating leases - net - 904,391
Investment in leveraged leases - 438,504
Investment in securities 3,188 1,064,841
Investment in associated companies - 17,215
Repossessed real estate held for sale 18,603 -
Inventory held for sale or lease - 107,514
Other assets 6,337 42,558
Goodwill - 177,551
-------- ----------
35,079 6,341,115
-------- ----------
Total assets $ 57,341 $6,360,762
======== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities
Short-term notes payable $ - $1,417,754
Accounts payable and other liabilities 83,173 398,592
Deferred taxes on income - 534,925
Long-term debt 3,027,638 3,171,637
---------- ----------
Total liabilities 3,110,811 5,522,908
---------- ----------
Shareholder's equity
Common Stock, $1 par value, authorized - 10,000 shares;
issued and outstanding - 10 shares * *
Additional capital 549,904 521,425
Net unrealized (loss) on available-for-sale securities - (3,782)
Earnings retained for use in business 509,802 320,211
---------- ----------
1,059,706 837,854
Notes receivable from Ford affiliates (4,113,176) -
---------- ----------
Total shareholder's (deficit)/equity (3,053,470) 837,854
---------- ----------
Total liabilities and shareholder's equity $ 57,341 $6,360,762
========== ==========
</TABLE>
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* Less than $500
See notes to consolidated financial statements.
-12-
<PAGE>
USL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flow from operations:
Net income from operations $ 189,591 $ 134,995 $ 109,013
Noncash expenses, revenues, losses, and gains
included in income:
Gain on sale of business units (99,642) - -
Depreciation and amortization 92,315 147,317 150,562
Deferred taxes on income (534,925) 110,766 112,075
Provision for losses (2,318) 5,679 8,296
Net (decrease)/increase in advances from Ford and affiliates (96,386) 34,794 (44,727)
(Decrease)/increase in accounts payable (80,278) 25,771 (7,565)
(Decrease)/increase in accrued liabilities and lease deposits (143,949) 91,337 (6,567)
Other (65,286) (10,247) (1,121)
----------- ---------- -----------
Total cash flow (used in)/provided by operations (740,878) 540,412 319,966
----------- ---------- -----------
Cash flows from investing activities:
Recovery of equipment costs and residual interests 567,636 667,531 675,645
Cost of equipment acquired for lease (869,038) (1,295,057) (1,045,007)
Notes receivable investments (242,561) (588,391) (329,394)
Collections on notes receivable investments 294,993 385,784 190,731
Purchase of held-to-maturity securities (42,020) (69,620) (108,302)
Purchase of available-for-sale securities (79,435) (195,238) (58,210)
Increase in deferred initial direct costs (8,833) (15,331) (11,114)
Purchases of other equity securities-not subject to SFAS 115 (116,000) (177,797) -
Other (4,914) (4,452) (12,165)
Proceeds from sale of finance receivables 5,608,878 - 67,581
Sale of held-to-maturity securities 680,141 55,497 29,986
Sale and maturity of available-for-sale securities 322,781 18,666 7,181
Sale of other equity securities-not subject to SFAS 115 307,000 - -
Net increase in notes receivable from affiliates (4,113,176) - -
----------- ---------- -----------
Net cash provided/(used in) by investing activities 2,305,452 (1,218,408) (593,068)
Cash flows from financing activities
Proceeds from long-term borrowings 480,580 1,048,186 290,932
Long-term debt repaid (624,579) (355,095) (360,636)
Net (decrease)/increase in short-term borrowings (1,417,754) 80,153 352,324
Dividend to Ford Holdings (40,000) (100,000) -
Gain on related party transaction (Note 13) 28,479 - -
----------- ---------- ------------
Net cash (used in)/provided by financing activities (1,573,274) 673,244 282,620
(Decrease)/increase in cash and cash equivalents (8,700) (4,752) 9,518
Cash and cash equivalents at beginning of period 11,474 16,226 6,708
=========== ========== ============
Cash and cash equivalents at end of period $ 2,774 $ 11,474 $ 16,226
=========== ========== ============
Supplemental schedule of cash flow information:
Interest paid $ 267,208 $ 276,125 $ 227,572
Income taxes paid 751,319 581 50
Supplemental schedule of noncash investing and
financing activities:
Accrued interest on notes receivable added to $ 2,192 $ 7,168 $ 1,601
principal
Lease equipment and notes receivable transferred to
inventory held for sale or lease 20,092 12,316 23,163
Fair market value adjustment on available-for-sale (6,203) (364) (5,839)
securities
Deferred and commitment fees transferred to notes 1,914 - -
receivable
See notes to consolidated financial statements.
</TABLE>
-13-
<PAGE>
USL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY/(DEFICIT)
<TABLE>
<CAPTION>
NET UNREALIZED
(LOSS) ON NOTES REC TOTAL
COMMON ADDITIONAL AVAILABLE-FOR-SALE RETAINED FROM FORD SHAREHOLDER'S
STOCK CAPITAL SECURITIES EARNINGS AFFILIATES EQUITY/(DEFICIT)
-------- ---------- ------------------ --------- ---------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $ * $ 521,425 $ 216,203 $ 737,628
Dividend (100,000) (100,000)
Unrealized (loss) -
At January 1, 1994 $ (979) (979)
Change, net of taxes (2,581) (2,581)
Net income 109,013 109,013
------- --------- ----------- ---------- ----------- -----------
Balance at December 1, 1994 * 521,425 (3,560) 225,216 - 743,081
Dividend (40,000) (40,000)
Change, net of taxes (222) (222)
Net income 134,995 134,995
------- --------- ----------- --------- ----------- -----------
Balance at Decmeber 1, 1995 * 521,425 (3,782) 320,211 - 837,854
Gain on related party transaction 28,479 28,479
Change, net of taxes 3,782 3,782
Net income 189,591 189,591
Notes receivable from Ford
affiliates $(4,113,176) $(4,113,176)
------- --------- ----------- --------- ----------- -----------
Balance at December 31, 1996 $ * $ 549,904 $ - $ 509,802 $(4,113,176) $(3,053,470)
======= ========= =========== ========= =========== ===========
- ----------
*Less than $500
</TABLE>
See notes to consolidated financial statements.
-14-
<PAGE>
USL CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Consolidation -- The consolidated financial statements include USL Capital
Corporation ("Company") and all of its majority-owned subsidiaries. Investments
in partnerships and 50%-or-less owned associated companies are accounted for on
the equity method. All material intercompany balances and transactions are
eliminated. Certain amounts have been reclassified to conform to the 1996
presentation.
Nature of Operations -- Prior to the sale of business units described in
Note 2, the Company provided leasing and financing to commercial and
governmental entities, principally in the United States, including office and
business equipment, large-balance transportation equipment, industrial and
energy facilities, and commercial automobile fleets, as well as mortgage
financing of income-producing real estate, full-service leasing to industrial
shippers and railroads, municipal financing of essential-use equipment, and
investment in publicly traded and privately placed preferred stocks and senior
and subordinated debt of public and private companies. The Company provided
financing in the form of finance leases, operating leases, leveraged leases,
notes receivable, and corporate securities.
Basis of Presentation -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash and cash equivalents consist of highly
liquid investments with a maturity of three months or less at the time of
purchase. For Cash and Cash Equivalents, the carrying amount is stated at fair
value.
Finance Leases -- At lease commencement, the Company recorded the lease
receivable, estimated residual value of the leased equipment, and unearned lease
income. Initial direct costs were deferred as part of the investment and
amortized over the lease term. Unearned lease income was recognized as revenue
over the lease term so as to approximate a level rate of return on the net
investment. Residual values, which were reviewed periodically, represented the
estimated amount to be received at lease termination from the disposition of
leased equipment.
Operating Leases -- Lease contracts that did not meet the criteria of
finance leases were accounted for as operating leases. Rental equipment was
recorded at cost and depreciated over its useful life or lease term to an
estimated salvage or residual value (10 to 30 years for railroad cars and 3 to
10 years for other equipment), primarily on a straight-line basis.
Leveraged Leases -- Leveraged lease assets acquired by the Company were
financed primarily through nonrecourse loans from third-party debt participants.
These loans were collateralized by the lessee's rental obligations and the
leased property. Unearned income was recognized over the lease term at a
constant after-tax rate of return on the net investment in the lease in those
periods in which the net investment was positive. Unguaranteed estimated
residual values were principally based on independent appraisals of the
estimated values of the assets remaining at the expiration of the lease.
Investments in Securities -- Investments in securities consisted
principally of debt securities (preferred stock, corporate and Municipal bonds)
which were reported as held-to-maturity and recorded at amortized cost, net of a
provision for losses that was sufficient to cover estimated uncollectibles,
because the Company had the ability and intent to hold such securities until
maturity. Securities classified as available-for-sale were recorded net of the
unrealized holding gain/loss which was excluded from earnings and reported as a
separate component of Shareholder's Equity, net of related deferred taxes.
-15-
<PAGE>
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Equity securities that were bought and held principally for the purpose of
selling in the near term were classified as trading securities and reported at
fair value, with unrealized gains and losses included in earnings. Equity
securities which did not have readily determinable fair values, principally
investments in low income housing partnerships, were recorded at cost. See Notes
8 and 16 for additional information on the fair value of securities.
Goodwill -- As part of the business unit sales, goodwill was written off
(see Note 2). Goodwill was principally from the acquisition by Ford, and was
being amortized on the straight-line method over 40 years (1995, $5,643,000;
1994, $5,643,000).
Taxes on Income and Tax Credits -- Prior to 1996, the Company was included
in the consolidated federal income tax return of Ford Holdings. Effective
January 1, 1996, the Company was included in the Ford consolidated group. Income
taxes, including the federal alternative minimum tax, if any, were allocated to
the Company based on its effect on taxes paid by the group. Deferred
income tax liabilities gave effect to temporary differences between financial
statement and tax return amounts based upon enacted tax rates in effect for the
future periods when such differences were expected to reverse.
Derivatives -- Derivatives consisted principally of interest rate swap and
interest rate cap agreements used to manage the Company's interest rate risk.
Interest differentials paid or received under interest rate swap agreements were
recognized as an adjustment to interest expense over the life of the agreements.
Premiums paid for interest rate caps were included with long-term debt and were
amortized to interest expense on a straight-line basis over the terms of the
related agreements.
NOTE 2 -- SALE OF BUSINESS UNITS
In May 1996, Ford announced that it was pursuing the sale of the Company's
businesses and expected to complete the sale of operating assets representing a
majority of the Company's current lines of business during 1996. By the end of
1996, the Company had completed the sale of substantially all of its
consolidated operating assets; all personnel were separated at the close of
December 31, 1996. These transactions resulted in a gain of $269 million before
taxes and $100 million after taxes, including the write-off of $126 million of
goodwill. On a going-forward basis, any remaining operating assets and
obligations of the Company will be managed by Ford affiliates, primarily Ford
Credit.
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 $869 million. Ford indirectly owns over 80% of
the outstanding stock of Associates First Capital corporation. The Company's
Fleet Services business included more than 100,000 owned or managed vehicles
and 1,850 commercial customers. Fleet Services represented 12% of the Company's
earnings assets as of June 30, 1996.
On July 31, 1996, the Company completed the sale of its Rail Services
business unit to First Union Corporation for $922 million, subject to
post-closing adjustments which are not expected to have a material effect on the
financial statements. The Company's Rail Services business included over 26,000
rail cars and represented 12% of the Company's earnings assets as of June 30,
1996.
In September 1996, the Company completed the sale of substantially all of
the Company's Transportation and Industrial Financing business unit to BA
Leasing and Capital Corporation and Security Pacific Leasing Corporation,
affiliates of BankAmerica Corporation, for $1.6 billion. The Transportation and
Industrial Financing portfolio consisted primarily of leases on aircraft, rail,
marine and other industrial equipment and machinery, and represented 25% of the
Company's earning assets as of June 30, 1996.
On September 30, 1996, the Company completed the sale of its Business
Equipment Financing business unit to Mellon Bank, N.A. for $1.7 billion, subject
to post-closing adjustments which are not expected to have a material effect on
the financial statements. The Business Equipment Financing business was a
middle-market equipment leasing and financing provider with transactions ranging
from $250,000 to $10 million, and represented 22% of the Company's earning
assets as of June 30, 1996.
-16-
<PAGE>
As of September 30, 1996, in addition to the above sales, the Company had
completed the sale of (i) the Real Estate Financing business unit's mortgages to
Bankers Trust Company for $496 million as well as two of its foreclosed real
estate assets; and (ii) $1.3 billion of the assets of the Municipal and
Corporate Financing business unit. As of June 30, 1996, the Real Estate
Financing business unit and the Municipal and Corporate Financing business unit
represented 8% and 21%, respectively, of the Company's earnings assets.
All of the above sales were the result of a competitive bidding process.
In order to hedge against changes in the price of certain assets being sold
as a result of movements in interest rates, the Company entered into two
interest rate swap agreements. One agreement was for two years with a notional
amount of $1.525 billion and the other was a ten year agreement with a notional
value of $600 million. The Company terminated and settled these agreements when
the assets were sold in September 1996.
On July 29, 1996, the Company received the requisite number of consents
from its bondholders to make amendments in certain provisions of the debt
agreements covering all $3.2 billion of the Company's outstanding 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 a result of the above, and the fact that the Company did not intend to
incur any additional third party debt, the Company canceled all existing bank
lines, effective August 2, 1996. The Company used the proceeds from the sales of
assets to (1) pay down related liabilities, (2) repay all outstanding short-term
borrowings and (3) loan $3.2 billion to Ford Credit. The remaining excess funds,
approximately $975 million at September 30, 1996, were loaned to Ford Holdings.
NOTE 3 -- INCOME FROM DISCONTINUED OPERATIONS
As indicated in Note 2, substantially all of the Company's business units were
sold in 1996. The following table reflects income and expenses from the
business units sold through the date of sale:
INCOME FROM DISCONTINUED OPERATIONS
-----------------------------------
Years Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
(in thousands)
Revenues $ 499,553 $ 678,926 $ 596,065
Expenses
Interest 194,030 276,915 220,759
Depreciation - operating leases 92,315 116,752 121,555
Sales, administrative, general and other 82,261 89,520 93,965
---------- ---------- ----------
Total expenses 368,606 483,187 436,279
Income before taxes on income 130,947 195,739 159,786
Taxes on income 50,286 60,744 50,773
---------- ---------- ----------
Income from discontinued operations $ 80,661 $ 134,995 $ 109,013
========== ========== ==========
-17-
<PAGE>
NOTE 4 -- INVESTMENT IN FINANCE LEASES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Receivable in installments $ 6,200 $ 3,321,818
Residual value 3,550 338,787
Allowance for doubtful accounts (72) (25,960)
Unearned lease income (2,727) (1,104,614)
Deferred initial direct costs 0 18,913
----------- -----------
Net investment $ 6,951 $ 2,548,944
=========== ===========
</TABLE>
In January, 1997, the remaining finance lease was sold, with proceeds
approximating its carrying value.
Finance leases included open-end transactions in the Fleet Services
business unit in which the lessee paid the Company for any shortfall from a
stated terminal amount for vehicles or received any amount in excess of the
terminal value. On most of these transactions, Fleet Services retained an
exposure to the lowest dollar amounts of the vehicles' value, of which half was
guaranteed by a third party. Because of the high value of the vehicles
underlying these transactions, full recovery of the value was expected to be
covered by the lessees' guarantees. As such, all amounts were included above in
receivable in installments.
NOTE 5 -- INVESTMENT IN OPERATING LEASES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
(IN THOUSANDS)
Equipment cost:
Automotive $ 0 $ 112,736
EDP, peripheral and word processing 0 83,402
Copiers 0 201,774
Rail 0 639,261
Aircraft 0 62,209
Office furniture 0 29,518
Manufacturing and industrial equipment 0 109,987
Other 0 53,678
---------- ----------
Total equipment cost 0 1,292,565
Accumulated depreciation 0 (391,102)
Rentals receivable 0 7,713
Allowance for doubtful accounts 0 (4,785)
---------- ----------
Net investment $ 0 $ 904,391
========== ==========
</TABLE>
Contingent rentals (in thousands) received were $7,847 in 1995.
-18-
<PAGE>
<PAGE>
NOTE 6 -- INVESTMENT IN LEVERAGED LEASES
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Rentals receivable (net of principal and interest
on nonrecourse debt) $ 0 $ 497,741
Estimated residual values 0 306,002
Allowance for doubtful accounts 0 (2,857)
Unearned income 0 (363,119)
Deferred initial direct costs 0 737
--------- ----------
Investment in leveraged leases 0 438,504
Less deferred income taxes arising from leveraged
leases 0 (122,297)
---------- ----------
Net investment $ 0 $ 316,207
========== ==========
</TABLE>
A summary of the components of income from leveraged leases was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Income before taxes on income $ 22,968 $ 27,667
Taxes on income 8,964 10,015
-------- --------
Income from leveraged leases $ 14,004 $ 17,652
======== ========
</TABLE>
NOTE 7 -- NOTES RECEIVABLE
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Principal $ 0 $1,040,696
Interest receivable 0 12,667
Deferred loan origination costs 0 1,896
Allowance for doubtful accounts 0 (15,662)
--------- ----------
Net $ 0 $1,039,597
========= ==========
</TABLE>
-19-
<PAGE>
NOTE 8 -- INVESTMENT IN SECURITIES
Investments in securities at December 31, 1996, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Available-for-Sale Securities
Common Stock $ 2,303 $ 0 $ 0 $ 2,303 $ 2,303
Trading Securities 811 134 (60) 885 885
---------- ------- ------- ---------- ----------
Total Investments in Securities $ 3,114 $ 134 $ (60) $ 3,188 $ 3,188
========== ======= ======= ========== ==========
</TABLE>
Investments in securities at December 31, 1995, were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR CARRYING
COST GAINS LOSSES VALUE VALUE
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Available-for-Sale Securities
Preferred Stock $ 243,676 $ 4,445 $ 9,099 $ 239,022 $ 239,022
Common Stock 3,504 0 0 3,504 3,504
Debt Securities 4,672 0 1,549 3,123 3,123
---------- ------- ------- ---------- ----------
Total available-for-sale securities 251,852 4,445 10,648 245,649 245,649
---------- ------- ------- ---------- ----------
Held-to-Maturity Securities
Redeemable Preferred Stock 547,616 13,592 1,805 559,403 547,616
Debt Securities 90,505 2,247 7,022 85,730 90,505
---------- ------- ------- ---------- ----------
Total held-to-maturity securities 638,121 15,839 8,827 645,133 638,121
---------- ------- ------- ---------- ----------
Allowance for doubtful accounts (10,491)
----------
Total held-to-maturity securities
(net) 627,630
----------
Trading Securities 279 49 4 324 324
---------- ------- ------- ---------- ----------
Equity securities not practicable to
fair value 191,238 0 0 191,238 191,238
---------- ------- ------- ---------- ----------
Total Investments in Securities $1,081,490 $ 20,333 $ 19,479 $1,082,344 $1,064,841
========== ======= ======= ========== ==========
</TABLE>
-20-
<PAGE>
Proceeds from the sale of available-for-sale securities were $322 million
in 1996 and $22.0 million in 1995, with realized (loss)/gain of ($3.6) million
and $1.8 million, respectively. Proceeds from the sale of held-to-maturity
receivables were $680 million and generated a realized loss of $7.2 million in
1996. The held-to-maturity securities were sold as part of the Company's sale of
business units described in Note 2. Amortized cost was the basis used in
computing the realized gains. The net unrealized gain/(loss) net of tax included
in shareholder's equity was $(0) million and $(3.8) million at December 31, 1996
and 1995, respectively.
NOTE 9 -- SHORT-TERM NOTES PAYABLE
Short-term notes payable consist entirely of commercial paper. At December
31, 1996, there was no commercial paper outstanding. Average interest rates,
after giving effect to interest rate exchange agreements, on commercial paper
outstanding at December 31, 1995 were 6.1% The interest rate exchange
agreements had the effect of fixing interest rates on $259.2 million of debt at
December 31, 1995. The balance outstanding at December 31, 1995 had an average
maturity of 24 days. There were no borrowings outstanding on committed credit
lines at December 31, 1996.
NOTE 10 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Collateralized:
7.1% due through 1996 $ 0 $ 9,519
Senior:
1.8% to 9.9% due through 2011 3,027,638 3,162,118
---------- ----------
Total $3,027,638 $3,171,637
========== ==========
</TABLE>
Payments required on long-term debt are (in thousands): 1997, $653,000;
1998, $626,000; 1999, $364,275; 2000, $341,000; and, thereafter, $810,363. The
average interest rate on senior debt outstanding at December 31, 1996, was 6.6%
Included in long-term debt (in thousands) at December 31, 1996, were
obligations of $1,879,638 with fixed interest rates and $1,148,000 with variable
interest rates.
Ford Credit was co-obligor on the outstanding debt at December 31, 1996.
Furthermore, the Company note receivable with Ford Credit (Note 13) has the
same payment terms as the outstanding debt.
-21-
<PAGE>
NOTE 11 -- TAXES ON INCOME
The Company uses the liability method of accounting for income taxes
pursuant to SFAS No. 109.
The provision for taxes on income included:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred:
United States $(571,925) $ 98,373 $102,546
State 37,000 12,393 9,529
--------- -------- --------
Total deferred (534,925) 110,766 112,075
--------- -------- --------
Current:
United States 743,961 (49,953) (62,018)
State 15,805 (286) 528
Foreign 109 217 188
--------- -------- --------
Total current 759,875 (50,022) (61,302)
--------- -------- --------
Total $ 224,950 $ 60,744 $ 50,773
========= ======== ========
</TABLE>
The total 1996 provision of $225 million consisted of the following; $5
million for continuing activities; $48 million for discontinued operations;
$172 million for sale of business units.
Deferred income taxes reflect the estimated future tax effect of temporary
differences between the amount of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws and regulations. The
components of deferred income tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liability
Leasing transactions $ 0 $579,790
Notes payable 0 17,159
Other 0 9,977
-------- --------
0 606,926
-------- --------
Deferred tax asset
Allowance for credit losses 0 23,322
Employee benefit plans 0 9,661
State net operating loss carry forwards 0 36,597
Other 0 2,421
-------- --------
0 72,001
-------- --------
Net deferred tax liability $ 0 $534,925
======== ========
</TABLE>
-22-
<PAGE>
NOTE 11 -- TAXES ON INCOME (CONTINUED)
The provision for taxes on income differed from the normal statutory rate
for the following reasons:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Normal U.S. tax rate 35.0% 35.0% 35.0%
State taxes, less U.S. tax benefit 8.2 4.0 4.1
Goodwill 14.5 1.0 1.2
Income taxed at reduced rates:
Foreign sales corporations - (1.7) (1.9)
Dividends received deduction - (6.2) (5.8)
Government obligations - (0.6) (0.9)
Section 42 Housing Credits - (0.4) --
Other -- net (3.3) (0.1) 0.1
---- ---- ----
Provision for taxes 54.4% 31.0% 31.8%
==== ==== ====
</TABLE>
Federal income taxes (payable to)/receivable from Ford Holdings (in
thousands) were: $(0) at December 31, 1996, and $4,301 at December 31, 1995.
NOTE 12 -- PENSIONS
The Company sponsored a defined contribution retirement plan comprising a
profit sharing part and a deferred compensation matching contribution part which
covered substantially all of its employees. The combined contribution for profit
sharing and deferred compensation match was limited to 10% of a participant's
qualified earnings. Under the profit sharing part, contributions were determined
as 6.9% of each covered participant's qualified earnings, plus an additional
5.7% of earnings above the Social Security maximum taxable amount. Profit
sharing cost represented contributions minus forfeited amounts of terminated
participants. Under the deferred compensation part, contributions (cost) were
determined for eligible participants as 75 cents per dollar of deferred
compensation for the first 3% of compensation plus 25 cents per dollar for the
next 3%, up to 6% of compensation. The total cost of the retirement plan (in
thousands) amounted to $3,830 in 1996, $2,118 in 1995, and $2,750 in 1994.
As of January 1, 1997, the assets and liabilities of the
Company's defined contribution retirement plan were transferred to Ford.
NOTE 13 -- TRANSACTIONS WITH AFFILIATED COMPANIES
At December 31, 1996 the Company had sold essentially all of its operating
assets and had separated all of its staff at the close of December 31, 1996.
Management of any remaining business operations was assumed by Ford affiliates
after December 31, 1996.
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 outstanding long-term
debt. On July 31, 1996, the Company and Ford Credit executed the supplemental
indentures whereby Ford Credit became a co-obligor with the Company on all such
debt. In connection with Ford Credit's becoming co-obligor on the Company's debt
agreements, the Company has loaned cash proceeds from sales of assets to Ford
Credit in an amount up to the outstanding debt.
The Company used the proceeds from the sales of assets to (1) pay down
related liabilities, (2) repay all outstanding short-term borrowings, and (3)
loan $3.2 billion to Ford Credit. The remaining excess funds, approximately $975
million at September 30, 1996, were loaned to Ford Holdings. At December 31,
1996, the notes receivable balances for Ford Credit and Ford Holdings were $3.0
billion and $1.0 billion, respectively.
In January, 1996 the Company paid a $40 million dividend to Ford Holdings,
which was declared December 31, 1995.
In connection with the sale of the Fleet Services business unit to The
Associates on July 1, 1996, the gain on related party transaction of $28.5
million was recorded in equity.
In December, 1996 the Company contributed assets valued at $13 million to
DFO Holdings, a subsidiary of Ford Credit, in exchange for 822 shares of DFO
Holdings common stock.
-23-
<PAGE>
NOTE 14 -- DERIVATIVE FINANCIAL INSTRUMENTS
At December 31, 1996 there were no interest rate contracts.
The Company had entered into arrangements to manage exposure to
fluctuations in interest rates. It was the objective of the Company to optimize
its borrowing costs while maintaining stable interest rate margins through term
matching assets with debt of similar maturities. These arrangements primarily
included interest rate swap and interest rate cap agreements. Under interest
rate cap agreements, the Company paid a premium for the right to receive
interest in excess of the capped rates. Interest rate swap agreements involved
the exchange of interest obligations on fixed and floating interest rate debt
without the exchange of the underlying principal amounts. The agreements
generally matured at the time of the related debt matures. The differential paid
or received on interest rate swap agreements was recognized as an adjustment to
interest expense over the life of the agreements. Notional amounts were used to
express the volume of interest rate swap agreements. The notional amounts did
not represent cash flows and were not subject to risk of loss. In the unlikely
event that a counterparty failed to meet the terms of an interest rate swap
agreement, the Company's exposure was the termination value of the contracts.
The following table summarizes the interest rate contracts that the Company
used to manage its interest rate risk:
DECEMBER 31, 1995
-------------------------
NOTIONAL TERMINATION
PRINCIPAL VALUE
--------- -----------
(IN MILLIONS)
Interest Rate Swaps-Net Receivable Position $ 568.4 $ 31.5
Interest Rate Swaps-Net Payable Position 989.4 (37.2)
Interest Rate Caps 27.0 0.1
NOTE 15 -- OTHER FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
At December 31, 1996, the Company had no financial instruments with off-
balance sheet risk.
The Company had issued a financial guarantee in support of a line of credit
entered into by an affiliate of Ford. This affiliate, located in Australia, was
previously a subsidiary of the Company, which retained management responsibility
for its operations. The line of credit expired in 1996. At December 31, 1995,
the financial guarantee issued totaled $3.0 million, and the outstanding balance
subject to such guarantee was $1.5 million. This remaining debt was repaid in
January 1996.
NOTE 16 -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1996, and December 31, 1995. The
fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale.
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Notes receivable (Note 7) $ - $ - $ 1,039,597 $ 1,049,380
Investment in securities (Note 8) 3,188 3,188 1,064,841 1,082,344
Short-term notes payable (Note 9) - - (1,417,754) (1,417,754)
Long term debt (Note 10) (3,027,638) (2,938,250) (3,171,637) (3,260,669)
Note receivable from affiliate 4,113,176 3,991,739 - -
Derivatives relating to debt (Note 14)
Interest rate swaps-net rec.
position N/A N/A N/A 31,461
Interest rate swaps-net pay.
position N/A N/A N/A (37,163)
Interest rate caps N/A N/A N/A 62
Guarantees and commitments N/A N/A N/A 202
</TABLE>
The carrying amounts presented in the table are included in the
consolidated balance sheets under the indicated captions, and are net of any
applicable allowance for doubtful accounts.
-24-
<PAGE>
The following notes summarize the major methods and assumption used in
estimating the fair values of financial instruments:
NOTES RECEIVABLE were estimated by either discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities, or dealer quotes.
INVESTMENT IN SECURITIES were estimated primarily by market and dealer
quotes. If a quoted market price was not available, fair value was
estimated using quoted market prices for similar securities. Debt
securities were also valued using the discounted future cash flows based
upon current rates of similar debt instruments traded when a market quote
of a similar investment was not available.
SHORT-TERM NOTES PAYABLE were estimated at their carrying amount
because of the short maturity of these instruments.
LONG-TERM DEBT was estimated by discounting the future cash flows
using rates currently available to the Company for debt with similar terms
and remaining maturities. It was the Company's policy to follow a strategy
of match-funding all financing, and as such, the Company believed that the
change in the fair market value of its debt would be offset by a
corresponding increase in the estimated fair value of its investment in
leases.
DERIVATIVES were estimated as the amount that the Company would
receive or pay to terminate the agreements at the reporting date, taking
into account current market interest rates and corresponding borrowing
spreads.
FINANCIAL GUARANTEES were estimated as the amount that the Company
would need to pay an independent third party to assume responsibility for
the guarantees. Based upon an assessment that the
-25-
<PAGE>
NOTE 16 -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
probability of performance under each guarantee was remote, the Company
believed that such amounts were insignificant.
LOAN COMMITMENTS were estimated at the amount of the commitment, in
that the financing rates associated with the various commitments floated
until funding.
NOTE 17 -- POSTRETIREMENT BENEFITS
The Company sponsored defined benefit postretirement health care plans that
provided medical and life insurance coverage to retirees and their dependents.
The cost of retiree and dependent medical coverage was shared between the
Company and the retiree. The life insurance plan was noncontributory. The
accounting for the health care plan anticipated future cost-sharing changes to
the written plan that were consistent with the Company's past practice. The
Company defined a maximum amount (or "cap") that it would contribute toward the
health benefits of each retiree. This cap was re-determined annually and was
based on the individual retiree's number of dependents. The Company had a
history of increasing this cap. Over the last seven years the aggregate increase
in the cap approximated the average increase in the underlying premium costs of
the program. This valuation assumed that in future years the Company would
continue to increase the cap at the average rate of increase of the underlying
cost of the retiree benefit program. However, benefits and eligibility rules
could be modified by the Company from time to time.
The following table sets forth the plans' combined funded status reconciled
with the amount shown in the Company's statement of financial position at
December 31:
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
<TABLE>
<CAPTION>
1996 1995
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Retirees $ (3,398) $(2,255)
Fully eligible plan participants (458) (627)
Other active plan participants 0 (2,736)
-------- --------
(3,856) (5,618)
Plan assets at fair value 0 0
-------- --------
Accumulated postretirement benefit obligation in excess
of plan assets (3,856) (5,618)
Unrecognized net (gain)/loss from past experience
different from that assumed and from changes in
assumptions (2,132) (2,397)
-------- --------
Accrued postretirement benefit cost $(5,988) $(8,015)
======== ========
</TABLE>
As of January 1, 1997, the assets and liabilities of the Company's defined
postretirement health care plans were transferred to Ford.
-26-
<PAGE>
NET PERIODIC POSTRETIREMENT BENEFIT COST INCLUDED THE FOLLOWING COMPONENTS:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Service cost -- benefits attributed to service during the
period $ 381 $ 384
Interest cost on accumulated postretirement benefit
obligation 400 484
Net amortization and deferral (109) (67)
------- -------
Net periodic postretirement benefit cost $ 672 $ 801
======= =======
Assumption: Discount rate at year-end 7.25% 7.25%
</TABLE>
For measurement purposes, 7.0 and 5.0% annual rates of increase in the per
capita cost of postretirement medical benefits were assumed for 1996 for the
under age 65 indemnity and HMO and over age 65 indemnity plans, respectively;
the rates were assumed to decrease gradually to 5.0% for 2001 and remain at that
level thereafter. The comparable rates assumed for 1995 were 7.5% and 5.0% for
the under age 65 indemnity and HMO and over age 65 indemnity plans,
respectively. The health care cost trend rate assumption had a significant
effect on the amounts reported. To illustrate, increasing the assumed health
care cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation as of December 31, 1996, by
$375,000 and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by $27,200.
-27-
<PAGE>
NOTE 18 -- LEGAL PROCEEDINGS
There are no pending legal proceedings, other than ordinary routine
litigation incidental to USL's previous businesses, to which USL is a party or
to which its property is subject, nor are any such proceedings known to be
contemplated by governmental authorities or others.
<PAGE>
SCHEDULE II
USL CAPITAL CORPORATION AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS BALANCE
BALANCE CHARGED TO AT END
AT BEGINNING COST AND OF
CLASSIFICATION OF PERIOD EXPENSE (DEDUCTIONS) PERIOD
- ------------------------------------ ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996
Allowance for Doubtful Accounts $ 59,755 $ 10,089 $69,772(1) $ 72
Allowance for Losses(2) 618 $ 13,799(3) 14,417
YEAR ENDED DECEMBER 31, 1995
Allowance for Doubtful Accounts $ 58,190 $ 5,679 $ 4,114(4) $59,755
Allowance for Losses(2) 905 287(4) 618
Allowance for Residual Valuation(5) 2,680 2,680(4) 0
YEAR ENDED DECEMBER 31, 1994
Allowance for Doubtful Accounts $ 54,529 $ 8,296 $ 4,635(4) $58,190
Allowance for Losses(2) 990 85 905
Allowance for Residual Valuation(5) 0 2,680 2,680
</TABLE>
- ---------------
(1) $64.3 million relates to reserve eliminated upon sale of USL's business
units; $5.5 million relates to write-offs applied to reserve during the
year.
(2) Principally included in "Repossessed real estate held for sale" caption on
the balance sheet.
(3) Valuation adjustment for repossessed real estate held for sale.
(4) Write-offs, net of recoveries.
(5) Included in "Residual value" caption on the balance sheet, the purpose for
which related to certain computer equipment.
-28-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
(3)A. Copy of the Certificate of Incorporation of United States Leasing
International, Inc., a Delaware Corporation filed with the Secretary
of State of the State of Delaware on August 15, 1986, and filed as Exhibit
3(A) to the Company's Annual Report on Form 10-K for the year ended December
31, 1993, is incorporated herein by this reference. *
B. Copy of the Agreement of Merger pursuant to which United States Leasing
International, Inc., a California corporation, merged into United States
Leasing International, Inc., a Delaware corporation filed with the
Secretary of State of the State of Delaware on October 27, 1986, and filed
as Exhibit 3(B) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated hereby by this reference. *
C. Copy of the Certificate of Amendment of Certificate of Incorporation of
United States Leasing International, Inc., pursuant to which United States
Leasing International, Inc. changed its name to USL Capital Corporation
filed with the Secretary of State of the State of Delaware on November 12,
1993, and filed as Exhibit 3(C) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1993, is incorporated herein by this
reference. *
D. Copy of Bylaws, as amended, through April 28, 1995, and filed as Exhibit
3(D) to the Company's Annual Report on Form 10-K for the year ended
December 31, 1995, is incorporated herein by this reference.
(4)A. Copy of Indenture dated as of January 15, 1986, between the Company and
The Chase Manhattan Bank (National Association), Trustee, including forms
of Debt Security and Medium Term Note, filed as Exhibit (4)A to the
Company's Annual Report on Form 10-K for the year ended December 31, 1991,
is incorporated herein by this reference *
B. Copy of Supplemental Indenture dated as of October 27, 1986, between the
Company and The Chase Manhattan Bank (National Association), Trustee, filed
as Exhibit (4)B to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, is incorporated herein by this reference *
C. Copy of Second Supplemental Indenture dated as of December 1, 1988, to
Indenture dated as of January 15, 1986, between the Company and The Chase
Manhattan Bank (National Association), Trustee, filed as Exhibit (4)C to
the Company's Annual Report on Form 10-K for the year ended December 31,
1993, is incorporated herein by this reference *
D. Copy of Third Supplemental Indenture dated as of July 31, 1996, to Indenture
dated as of January 15, 1986, between the Company and Chase Manhattan Bank
(National Association), Trustee.
E. Copy of Indenture dated as of July 1, 1991, between the Company and The
First National Bank of Chicago, Trustee, including forms of Debt Security
and Medium Term Note, filed on July 15, 1991 as Exhibits 4.1, 4.2, and 4.3,
respectively, to the Company's Registration Statement on Form S-3 (File No.
33-4165) is incorporated herein by this reference *
F. Copy of Supplemental Indenture dated as of July 31, 1996 to Indenture dated
as of July 1, 1991, between the Company and The First National Bank of Chicago,
Trustee.
G. Copy of the Indenture dated as of November 15, 1994, between the Company
and The Chase Manhattan Bank (National Association), Trustee, including
forms of Debt Security and Medium Term Note, filed on December 13, 1994, as
Exhibits 4.1, 4.2 and 4.3, respectively, to the Company's Registration
Statement on Form S-3 (File No. 33-56839) is incorporated herein by this
reference *
H. Copy of Supplemental Indenture dated as of July 31, 1996 to Indenture dated
as of November 15, 1994, between the Company and The Chase Manhattan Bank
(National Association), Trustee.
-29-
<PAGE>
(23) Consent of Independent Public Accountants (with respect to the Company's
current Registration Statement on Form S-3)
</TABLE>
- --------------
* Incorporated by Reference.
30
<PAGE>
USL CAPITAL CORPORATION,
FORD MOTOR CREDIT COMPANY
AND
THE CHASE MANHATTAN BANK
as Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of July 31, 1996
TO
INDENTURE
Dated as of January 15, 1986
as supplemented by the
FIRST SUPPLEMENTAL INDENTURE
Dated as of October 27, 1986
and the
SECOND SUPPLEMENTAL INDENTURE
Dated as of December 1, 1988
<PAGE>
THIRD 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 "Corporation"), 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 January 15, 1986 between the Corporation and the Trustee,
as supplemented by the First Supplemental Indenture thereto dated as of October
27, 1986 and the Second Supplemental Indenture thereto dated as of December 1,
1988 (the Indenture, as so supplemented, is herein referred to as 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 Corporation 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
Corporation and Ford Credit have agreed to provide for the addition of Ford
Credit as a co-obligor with the Corporation under the Indenture; and
WHEREAS, the Corporation desires and has requested the Trustee to join with
it in the execution and delivery of this Third Supplemental Indenture, and all
requirements necessary to make this Third 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 Corporation 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 Corporation 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 Third Supplemental Indenture, the due and punctual performance
of all of the covenants and obligations of the Corporation 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 Corporation under the Securities and the
Indenture.
(c) From and after the date hereof, except as otherwise specifically
provided in this Third Supplemental Indenture, all references in the Indenture
and the Securities to "the Corporation" 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 Corporation therein; provided, however, that, subject to
Section 4 of this Third Supplemental Indenture, all references to "the
Corporation" in Section 501 of the Indenture shall be deemed to be references to
"the Corporation or Ford Credit".
<PAGE>
-2-
(d) From and after the date hereof, any certificate, notice or request
(including any Corporation Request or Corporation Order) required to be
furnished by the Corporation under the Indenture, may be furnished by the
appropriate officers of the Corporation or Ford Credit; provided, however, that
any Officers' Certificate or Board Resolution required to be furnished by the
Corporation under the Indenture shall be provided by both the Corporation and
Ford Credit, unless the Trustee shall agree that such Officers' Certificate or
Board Resolution may be provided by either of the Corporation 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:
<PAGE>
-3-
"'Subsidiary' with respect to any Person means a corporation, partnership,
trust or unincorporated organization
(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 Corporation" in the definitions of "the
Corporation", "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 Corporation" in the definitions of "Board of
Directors", "Board Resolution" and "Officers' Certificate" shall be deemed to
refer to "the Corporation or Ford Credit, as the case may be,".
(e) The reference to "the Corporation" in the definition of "Lien" shall be
deemed to refer to "each of the Corporation 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 Corporation 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
Corporation 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 803 thereto:
<PAGE>
-4-
"SECTION 803. Application of Article Eight to the Corporation. If
and so long as Ford Credit is a co-obligor with respect to Securities
issued under this Indenture, the provisions of this Article Eight
shall not apply to the Corporation, and the Corporation 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 1005
shall not apply to Ford Credit.
(b) Article Ten of the Indenture is hereby amended by adding the following
new Section 1009 thereto:
"Section 1009. 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>
-5-
(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 Third 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 Corporation and Ford Credit.
SECTION 8. Governing Law. This Third Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of
California.
<PAGE>
-6-
SECTION 9. Miscellaneous. (a) The Indenture, as supplemented by this Third
Supplemental Indenture, is in all respects ratified and confirmed by each of the
Corporation, Ford Credit and the Trustee, and this Third 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 Corporation 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 Third
Supplemental Indenture, except that the Trustee represents that it is
duly authorized to execute and deliver this Third Supplemental
Indenture and perform its obligations hereunder.
(c) This Third 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 Third 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 CHASE MANHATTAN BANK has caused this Third
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 one of its
Assistant Treasurers.
USL CAPITAL CORPORATION
By: /s/ Joseph J. Mahoney
----------------------------
Name: Joseph J. Mahoney
Title: Senior Vice President
-- Chief Financial Officer
Attest:
/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 CHASE MANHATTAN BANK,
as Trustee
By: /s/ Valerie Dunbar
---------------------------
Name: Valerie Dunbar
Title: Vice President
Attest:
/s/ John T. Needham, Jr.
- ---------------------------
Name: John T. Needham, Jr.
Title: Assistant Treasurer
<PAGE>
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 the Chief Financial Officer 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 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/ N. Kassiants
----------------------------
NOTARY PUBLIC
[SEAL] My Commission Expires May 22, 1998
<PAGE>
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
[SEAL] My Commission Expires July 6, 2000
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK ) July 30, 1996
On the 30th day of July, in the year one thousand nine hundred ninety-six,
before me personally came Valerie Dunbar to me known, who, being by me duly
sworn, did depose and say that she resides at 132 15th Street, Brooklyn, NY
11215, that she is a Vice President of THE CHASE MANHATTAN BANK, one of the
corporations described in and which executed the above instrument; that she
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 she signed her name thereto by
like authority.
/s/ Della K. Benjamin
-----------------------------
NOTARY PUBLIC
[SEAL] My Commission Expires April 30, 1997
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
TO
INDENTURE
Dated as of July 1, 1991
<PAGE>
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".
(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
(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 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;
(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.
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 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/ Joseph J. Mahoney
-------------------------------
Name: Joseph J. Mahoney
Title: Vice President --
Chief Financial Officer
Attest:
/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/ R.J. Bruner
- ------------------------------
Name: R.J. Bruner
Title:
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 the Chief Financial Officer 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
[SEAL] My Commission Expires May 22, 1998
<PAGE>
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
[SEAL] My Commission Expires July 6, 2000
<PAGE>
STATE OF ILLINOIS )
) ss.:
COUNTY OF COOK )
July 30, 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
[SEAL] My Commission Expires January 14, 1999
USL CAPITAL CORPORATION,
FORD MOTOR CREDIT COMPANY
AND
THE CHASE MANHATTAN BANK
as Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of July 31, 1996
TO
INDENTURE
Dated as of November 15, 1994
<PAGE>
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.
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>
-2-
(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>
-3-
(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 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.".
<PAGE>
-4-
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;
<PAGE>
-5-
(3) Mortgages in favor of Ford Credit or any Restricted
Subsidiary;
(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
begoverned by and construed in accordance with the laws of the State of
California.
<PAGE>
-6-
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 CHASE MANHATTAN BANK 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 one of its
Assistant Treasurers.
USL CAPITAL CORPORATION
By: /s/ Joseph J. Mahoney
------------------------------
Name: Joseph J. Mahoney
Title: Senior Vice President --
Chief Financial Officer
Attest:
/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 CHASE MANHATTAN BANK,
as Trustee
By: /s/ Valerie Dunbar
--------------------------------
Name: Valerie Dunbar
Title: Vice President
Attest:
/s/ John T. Needham, Jr.
- ---------------------------
Name: John T. Needham, Jr.
Title: Assistant Treasurer
<PAGE>
-8-
July 30, 1996
STATE OF CALIFORNIA )
) ss.:
COUNTY OF SAN FRANCISCO)
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 the Chief Financial Officer 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
[SEAL] My Commission Expires May 22, 1998
<PAGE>
-9-
July 29, 1996
STATE OF MICHIGAN)
) ss.:
COUNTY OF WAYNE )
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
[SEAL] My Commission Expires July 6, 2000
<PAGE>
10
July 30, 1996
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 30th day of July, in the year one thousand nine hundred ninety-six,
before me personally came Valerie Dunbar to me known, who, being by me duly
sworn, did depose and say that she resides at 132 15th Street, Brooklyn, NY
11215; that she is a Vice President of THE CHASE MANHATTAN BANK, one of the
corporations described in and which executed the above instrument; that she
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 she signed her name thereto by
like authority.
/s/ Della K. Benjamin
---------------------------------
NOTARY PUBLIC
[SEAL] My Commission Expires April 30, 1997
EXHIBIT (23)
LETTERHEAD OF COOPERS & LYBRAND L.L.P.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of USL Capital Corporation on Form S-3 (File No. 33-56196) of our report dated
April 3, 1997, on our audits of the consolidated financial statements and
financial statement schedules of USL Capital Corporation as of December 31, 1996
and 1995, and for the years ended December 31, 1996, 1995, and 1994, which
report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Detroit, Michigan
April 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,774
<SECURITIES> 3,188
<RECEIVABLES> 12,158
<ALLOWANCES> 72
<INVENTORY> 18,603
<CURRENT-ASSETS> 0
<PP&E> 1,107
<DEPRECIATION> (6,245)
<TOTAL-ASSETS> 57,341
<CURRENT-LIABILITIES> 0
<BONDS> 3,027,638
0
0
<COMMON> 0
<OTHER-SE> (3,053,470)
<TOTAL-LIABILITY-AND-EQUITY> 57,341
<SALES> 582,124
<TOTAL-REVENUES> 582,124
<CGS> 0
<TOTAL-COSTS> 167,583
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (2,318)
<INTEREST-EXPENSE> 262,311
<INCOME-PRETAX> 414,541
<INCOME-TAX> 224,950
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 189,591
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
