FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[Mark One]
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
Commission file number: 1-8133
XEROX CREDIT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1024525
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 First Stamford Place, Stamford, Connecticut 06904
(Address of principal executive offices)
(Zip Code)
(203) 325-6600
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the latest practicable date.
Class Outstanding as of July 31, 1994
Common Stock 2,000
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
THIS DOCUMENT CONSISTS OF 12 PAGES.
(1)
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Millions)
Three Months Ended Six Months Ended
June 30, June 30,
1994 1993 1994 1993
Earned income:
Contracts receivable $ 87 $ 93 $ 180 $ 195
Expenses:
Interest 50 53 102 109
Operating and administrative 3 2 7 6
Total expenses 53 55 109 115
Income before income taxes 34 38 71 80
Provision for income taxes 15 15 30 32
Net income $ 19 $ 23 $ 41 $ 48
See accompanying notes.
(2)
XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
ASSETS
June 30, December 31,
1994 1993
Cash and cash equivalents $ 1 $ 1
Investments:
Contracts receivable 4,202 4,148
Notes receivable - Xerox and affiliates 100 71
Investment in Xerox affiliates, at equity 72 74
Unearned income (439) (437)
Allowance for losses (145) (153)
Total investments 3,790 3,703
Net assets of discontinued operations 311 357
Other assets 2 2
Total assets $ 4,104 $ 4,063
LIABILITIES, DEFERRED INCOME TAXES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 1,451 $ 1,653
Current portion of notes payable
after one year 570 554
Notes payable after one year 1,366 1,079
Notes payable after one year- Xerox and affiliates 75 75
Due to Xerox Corporation, net 51 67
Accounts payable and accrued liabilities 49 91
Total liabilities 3,562 3,519
Deferred income taxes 35 38
Shareholder's equity:
Common stock, no par value, 2,000 shares
authorized, issued and outstanding 23 23
Additional paid-in capital 145 145
Retained earnings 338 337
Cumulative translation adjustment 1 1
Total shareholder's equity 507 506
Total liabilities, deferred income
taxes and shareholder's equity $ 4,104 $ 4,063
See accompanying notes.
(3)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Six Months Ended
June 30,
1994 1993
Cash Flows from Operating Activities
Net income $ 41 $ 48
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease in operating assets
and liabilities:
Accounts Payable and accrued liabilities (35) (17)
Other, net (17) -
Net cash (used in) provided by operating activities (11) 31
Cash Flows from Investing Activities
Purchases of investments (980) (901)
Proceeds from collections of investments 920 808
Net collections from discontinued operations 39 91
Net cash used in investing activities (21) (2)
Cash Flows from Financing Activities
(Decrease) increase in short-term debt, net (231) 171
Proceeds from long-term debt 487 200
Principal payments on long-term debt (184) (375)
Dividends (40) (25)
Net cash provided by (used in) financing activities 32 (29)
Net Change
Cash and cash equivalents, (decreased) increased - -
Cash and cash equivalents, beginning of period 1 2
Cash and cash equivalents, end of period $ 1 $ 2
See accompanying notes.
(4)
XEROX CREDIT CORPORATION
Notes to Consolidated Financial Statements
(1) The consolidated financial statements presented herein have been
prepared by Xerox Credit Corporation (the "Company") in accordance with
the accounting policies described in its Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and should be read in
conjunction with the Notes to Consolidated Financial Statements
which appear in that report.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary for a fair statement of the
operating results for the interim periods presented have been made.
Interim financial data presented herein are unaudited.
(2) During the first six months of 1994, the Company sold an aggregate of
$487 million in principal amount of medium-term notes. Of this amount,
$255 million were floating rate notes which mature in 1996 and 1997 and
bear interest rates based primarily on spreads above certain reference
rates such as LIBOR and U.S. T-Bill Rates. The remaining notes were
fixed rate notes which mature in 1996 and 1997 and bear interest rates
ranging from 5.20% to 5.82%.
(3) During March 1994, the Company redeemed, at a 1.5% premium, $100 million
of 8% Notes due 1999.
(4) During the second quarter of 1994, the Company repaid, at maturity, $75
million of floating rate notes.
(5) Pursuant to a Support Agreement between the Company and Xerox
Corporation (Xerox), Xerox has agreed to retain ownership of 100 percent
of the voting capital stock of the Company and to make periodic payments
to the extent necessary to ensure that the Company's annual pre-tax
earnings available for fixed charges equal at least 1.25 times the
Company's fixed charges.
(5)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Continuing Operations
Contracts receivable income represents income earned under an agreement
with Xerox by which the Company purchases long-term accounts receivable
associated with Xerox' sold equipment. Earned income from contracts
receivable for the second quarter of 1994 was $87 million versus $93 million
in the corresponding period in 1993, and for the six-month periods ended June
30, 1994 and 1993, was $180 million and $195 million, respectively. The
decrease in earned income is primarily attributable to lower interest earned
on Xerox' contracts receivable resulting from declining interest rates.
Second quarter interest expense decreased to $50 million in 1994 from
$53 million in the same period in 1993. For the six-month period ended June
30, 1994, interest expense decreased to $102 million from $109 million in
1993. This decrease resulted from lower interest rates partially offset by
increased borrowings required to fund the Company's additional investment in
contracts receivable. The Company intends to continue to match its contracts
receivable and indebtedness to maintain the relationship between interest
income and interest expense.
Operating and administrative expenses were $3 million for the second
quarter of 1994 and $2 million for the second quarter of 1993. For the six-
month period ended June 30, 1994 and 1993, operating and administrative
expenses totaled $7 million and $6 million, respectively. These expenses
primarily represent the costs associated with the administration of contracts
receivable purchased from Xerox.
The six-month effective income tax rate for continuing operations for
1994 was 42.3 percent, versus 40.0 percent for 1993. The 1994 increase is
attributed to non-taxable equity losses recorded by the Company in connection
with its investment in Xerox Financial Services Life Insurance Company.
Discontinued Operations
Since their discontinuance in 1990, the Company made substantial
progress in disengaging from the real estate and third-party financing
businesses. For the three years ended December 31, 1993, the Company
received net cash proceeds of $2,089 million from the sale of dis-
continued business units, from asset securitizations, sales, and run-
off collection activities. The amounts received were consistent with the
Company's estimates in the disposal plan and were primarily used to reduce the
Company's short-term indebtedness. At June 30, 1994, the Company remains
contingently liable for approximately $84 million of receivables under
recourse provisions associated with the securitization transactions.
During the first six-months of 1994, the Company reduced its net assets
of discontinued operations by approximately $39 million, primarily through
contractual maturities. The related net proceeds were largely used to repay
short-term indebtedness.
(6)
XEROX CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
Since approximately $119 million of the remaining assets represent
passive lease receivables, many with long-duration contractual maturities and
unique tax attributes, the Company expects that the wind-down of the portfolio
will be slower during 1994 and in future years, compared with 1993 and prior
years. The Company believes that the liquidation of the remaining assets will
not result in a net loss.
CAPITAL RESOURCES AND LIQUIDITY
The Company's principal sources of funds are cash from the collection
of Xerox contracts receivable and borrowings.
At June 30, 1994 the Company and Xerox have joint access to four
revolving credit agreements totaling $4 billion with various banks, which
credit agreements expire from 1995 to 1999. The interest on amounts borrowed
under these facilities would be at rates based, at the borrower's option, on
spreads above certain reference rates such as LIBOR and Federal funds rates.
Overall, cash of $21 million was used in investing activities during
the first half of 1994, compared with $2 million during the same
period in 1993. The increase in cash used in investing activities is
principally the result of lower net collections from discontinued operations.
Cash provided by financing activities was $32 million in the first
half of 1994 compared to cash usage of $29 million during the same period in
1993. This change is largely due to the increased net proceeds from long-term
debt used to fund the Company's investments in Xerox' contracts receivable.
The Company believes that cash provided by operations, cash available
under its commercial paper program supported by its credit facilities, and its
readily available access to the capital markets are more than sufficient for
its funding needs.
Borrowing associated with the financing of customer purchases of Xerox
equipment is expected to continue to increase throughout 1994. This growth
will be partially offset by proceeds from discontinued third-party financing
and leasing asset sales. The timing, principal amount and form of new short-
and long- term funding will be determined based upon the Company's financing
needs and prevailing debt market conditions.
The Company intends to continue to match its contracts receivable and
indebtedness to maintain the relationship between investment income and
interest expense. To assist in managing its interest rate exposure, the
Company has entered into a number of interest rate swap agreements. In
general, the Company's objective is to hedge its variable-rate debt by paying
fixed rates under the swap agreements while receiving variable-rate
payments in return. Additionally, the Company has entered into interest rate
swap agreements which effectively convert variable-rate debt into variable-
rate debt that is indexed to commercial paper rates.
As of June 30, 1994, the Company's debt-to-equity ratio was 6.68 to 1.
The Company manages its operations over time using a debt-to-equity guideline
of 6.5 to 1.
(7)
XEROX CREDIT CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 12 (a) Computation of the Company's Ratio of Earnings
to Fixed Charges.
(b) Computation of Xerox' Ratio of Earnings
to Fixed Charges.
(b) Reports on Form 8-K.
A Current Report on Form 8-K dated May 25, 1994 reporting
Item 7. "Financial Statements, Pro Forma Financial
Information and Exhibits" was filed during the quarter for
which this Quarterly Report is filed.
(8)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(REGISTRANT) XEROX CREDIT CORPORATION
BY
(NAME AND TITLE) Sandeep B. Thakore, Vice President and Treasurer
(Chief Financial Officer)
(DATE) August 10, 1994
(9)
Exhibit 12 (a)
XEROX CREDIT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Six Months Ended
June 30, Year Ended December 31,
1994 1993 1993 1992 1991 1990 1989
Income before income taxes $ 71 $ 80 $ 154 $ 158 $ 164 $ 182 $ 140
Fixed Charges:
Interest expense
Xerox debt 2 2 4 2 - 2 6
Other debt 100 107 205 210 200 205 197
Total fixed charges 102 109 209 212 200 207 203
Earnings available for
fixed charges $ 173 $ 189 $ 363 $ 370 $ 364 $ 389 $ 343
Ratio of earnings to
fixed charges (1) 1.70 1.73 1.74 1.75 1.82 1.88 1.69
(1) The ratio of earnings to fixed charges has been computed based on the
Company's continuing operations by dividing total earnings available
for fixed charges by total fixed charges. Interest expense has been
assigned to discontinued operations principally on the basis of the
relative amount of gross assets of the discontinued operations.
Management believes that this allocation method is reasonable in
light of the amount of debt specifically assigned to discontinued
operations. The discontinued operations consist of the Company's real-
estate development and related financing operations and its third-party
financing and leasing businesses.
(10)
Exhibit 12(b)
XEROX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Six Months ended
June 30, Year ended December 31,
1994 1993 1993(*) 1992(**) 1991(***) 1990 1989
Fixed charges:
Interest expense $ 360 $ 392 $ 755 $ 788 $ 758 $ 799 $ 654
Rental expense 96 100 201 208 206 191 164
Total fixed charges
before capitalized
interest 456 492 956 996 964 990 818
Capitalized interest 1 2 5 17 3 - -
Total fixed charges $ 457 $ 494 $ 961 $1,013 $ 967 $ 990 $ 818
Earnings available for fixed
charges:
Earnings (****) $ 595 $ 417 $ (227)$ 192 $ 939 $1,116 $1,136
Less undistributed
income in minority
owned companies (35) (32) (51) (52) (70) (60) (44)
Add fixed charges before
capitalized interest 456 492 956 996 964 990 818
Total earnings available
for fixed charges $1,016 $ 877 $ 678 $1,136 $1,833 $2,046 $1,910
Ratio of earnings to
fixed charges (1)(2) 2.22 1.78 0.71 1.12 1.90 2.07 2.33
(1) The ratio of earnings to fixed charges has been computed based on
Xerox' continuing operations by dividing total earnings available for
fixed charges, excluding capitalized interest, by total fixed charges.
Fixed charges consist of interest, including capitalized interest, and
one-third of rent expense as representative of the interest portion of
rentals. Interest expense has been assigned to discontinued operations
principally on the basis of the relative amount of gross assets of the
discontinued operations. Xerox management believes that this allocation
method is reasonable in light of the debt specifically assigned to
discontinued operations. The discontinued operations consist of Xerox'
real-estate development and related financing operations and its third-
party financing and leasing businesses, and Other Financial Services
businesses.
(11)
Exhibit 12(b)
(Cont'd)
(2) Xerox' ratio of earnings to fixed charges includes the effect of
the Xerox' finance subsidiaries who primarily finance Xerox equipment.
Financing businesses, due to their nature, traditionally operate at
lower earnings to fixed charge ratio levels than do non-financial
companies.
(*) In 1993, the ratio of earnings to fixed charges includes the effect of
the $1,373 million before-tax ($813 million after-tax) charge incurred
in connection with the restructuring provision and litigation
settlement. Excluding this charge, the ratio was 2.13. 1993 Earnings
were inadequate to cover fixed charges. The coverage deficiency was
$238 million.
(**) In 1992, the ratio of earnings to fixed charges includes the effect of
the $936 million before-tax ($778 million after-tax) charge incurred in
connection with the decision to disengage from the Company's Insurance
and Other Financial Services businesses. Excluding this charge, the
ratio was 2.05.
(***) In 1991, the ratio of earnings to fixed charges includes the effect of
the $175 million before-tax ($101 million after-tax) charge incurred in
connection with the Document Processing work-force reduction announced
in December 1991. Excluding this charge, the ratio was 2.08.
(****) Income before income taxes and income in minority owned companies.
(12)
