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: September 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 October 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 13 PAGES.
(1)
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Millions)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
Earned income:
Contracts receivable $ 91 $ 87 $ 273 $ 282
Expenses:
Interest 52 52 154 161
Operating and administrative 2 4 9 10
Total expenses 54 56 163 171
Income before income taxes 37 31 110 111
Provision for income taxes 15 13 45 45
Net income $ 22 $ 18 $ 65 $ 66
See accompanying notes.
(2)
XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
ASSETS
September 30, December 31,
1994 1993
Cash and cash equivalents $ 2 $ 1
Investments:
Contracts receivable 4,128 4,148
Notes receivable - Xerox and affiliates 114 71
Unearned income (428) (437)
Allowance for losses (136) (153)
Total investments 3,678 3,629
Net assets of discontinued operations 378 431
Other assets 3 2
Total assets $ 4,061 $ 4,063
LIABILITIES, DEFERRED INCOME TAXES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 1,579 $ 1,653
Current portion of notes payable
after one year 518 554
Notes payable after one year 1,216 1,079
Notes payable after one year- Xerox and affiliates 75 75
Due to Xerox Corporation, net 43 67
Accounts payable and accrued liabilities 80 91
Total liabilities 3,511 3,519
Deferred income taxes 34 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 347 337
Cumulative translation adjustment 1 1
Total shareholder's equity 516 506
Total liabilities, deferred income
taxes and shareholder's equity $ 4,061 $ 4,063
See accompanying notes.
(3)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Nine Months Ended
September 30,
1994 1993
Cash Flows from Operating Activities
Net income $ 65 $ 66
Adjustments to reconcile net income to
net cash provided by operating activities:
Decrease in deferred income taxes (4) (104)
(Decrease)increase in operating assets
and liabilities, net (26) 6
Net cash provided by (used in) operating activities 35 (32)
Cash Flows from Investing Activities
Purchases of investments (1,387) (1,331)
Proceeds from collections of investments 1,381 1,220
Net collections from discontinued operations 43 173
Net cash provided by investing activities 37 62
Cash Flows from Financing Activities
(Decrease) increase in short-term debt, net (117) 163
Proceeds from long-term debt 486 425
Principal payments on long-term debt (385) (579)
Dividends (55) (39)
Net cash used in financing activities (71) (30)
Net Change
Cash and cash equivalents, increased 1 -
Cash and cash equivalents, beginning of period 1 2
Cash and cash equivalents, end of period $ 2 $ 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.
Certain prior year balances have been reclassified to conform to the
1994 presentation. The most significant reclassification pertains to
the reporting of the Company's investment in Xerox Financial Services
Life Insurance Company ("XFSLIC"), a subsidiary of the Company's parent,
Xerox Financial Services, Inc., which had been reported on the
consolidated balance sheet as a component of the Company's continuing
operations. Effective September 30, 1994, the Company's $74 million
investment in XFSLIC common stock has been reclassified on the
consolidated balance sheet as a component of net assets of discontinued
operations. This reclassification is the result of Xerox Financial
Services, Inc.'s decision to disengage from XFSLIC and, as a
consequence, the Company's investment in XFSLIC is expected to be
disposed of within one year. The Company is expected to receive book
value upon ultimate disposition of this investment.
Interim financial data presented herein are unaudited.
(2) During the first nine months of 1994, the Company sold an aggregate of
$486 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 third quarter of 1994, the Company repaid, at maturity, $175
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 pursuant to which the Company purchases long-term accounts
receivable associated with Xerox' sold equipment. Earned income from
contracts receivable for the third quarter of 1994 was $91 million versus $87
million in the corresponding period in 1993, and for the nine-month periods
ended September 30, 1994 and 1993, was $273 million and $282 million,
respectively. The decrease in earned income for the nine-month period is
primarily attributable to lower interest earned on Xerox' contracts
receivable resulting from an overall decline in interest rates.
Third quarter interest expense was $52 million in 1994 and 1993. For
the nine-month period ended September 30, 1994, interest expense decreased
to $154 million from $161 million in 1993. This decrease resulted from
overall 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 $2 million for the third
quarter of 1994 and $4 million for the third quarter of 1993. For the nine-
month period ended September 30, 1994 and 1993, operating and administrative
expenses totaled $9 million and $10 million, respectively. These expenses
primarily represent the costs associated with the administration of contracts
receivable purchased from Xerox.
The effective income tax rate for the third quarter of 1994 was 40.5
percent compared to 41.9 percent for the same period in 1993. The decrease is
primarily due to a cumulative adjustment in the third quarter of 1993
reflecting the change in the corporate federal income tax rate from 34 percent
to 35 percent. The nine-month effective income tax rate for continuing
operations for 1994 was 40.9 percent, approximately the same as for 1993.
Discontinued Operations
Since their discontinuance in 1990, the Company has 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 September 30, 1994, the Company remains
contingently liable for approximately $70 million of receivables under
recourse provisions associated with the securitization transactions.
During the first nine-months of 1994, the Company reduced its net assets
of discontinued operations by approximately $43 million, primarily through
contractual maturities. The related net proceeds were largely used to repay
short-term indebtedness.
Since approximately $117 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.
(6)
XEROX CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
CAPITAL RESOURCES AND LIQUIDITY
The Company's principal sources of funds are cash from the collection
of Xerox contracts receivable and borrowings.
At September 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.
Cash provided by operating activities was $35 million in the first
nine months of 1994 compared to $32 million of cash usage during the same
period in 1993. The change is primarily due to the smaller decrease in
deferred income taxes in 1994 versus 1993, resulting from fewer sales of
certain passive lease receivables.
Overall, cash of $37 million was provided by investing activities during
the first nine months of 1994, compared with $62 million during the same
period in 1993. The decrease in cash provided by investing activities is
principally the result of lower net collections from discontinued operations
offset by higher collections of investments.
Cash used in financing activities was $71 million in the first nine
months of 1994 compared to $30 million during the same period in
1993. This change is largely due to increased dividends and net debt
repayments.
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 September 30, 1994, the Company's debt-to-equity ratio was
6.42 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.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K.
None
(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) Donald R. Altieri, Vice President and Treasurer
(Chief Financial Officer)
(DATE) November 4, 1994
(9)
Exhibit 12 (a)
XEROX CREDIT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Nine Months Ended
September 30, Year Ended December 31,
1994 1993 1993 1992 1991 1990 1989
Income before income taxes $ 110 $ 111 $ 154 $ 158 $ 164 $ 182 $ 140
Fixed Charges:
Interest expense
Xerox debt 3 3 4 2 - 2 6
Other debt 151 158 205 210 200 205 197
Total fixed charges 154 161 209 212 200 207 203
Earnings available for
fixed charges $ 264 $ 272 $ 363 $ 370 $ 364 $ 389 $ 343
Ratio of earnings to
fixed charges (1) 1.71 1.69 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)
Nine Months ended
September 30, Year ended December 31,
1994 1993 1993(*)1992(**)1991(***)1990 1989
Fixed charges:
Interest expense $ 541 $ 575 $ 755 $ 788 $ 758 $ 799 $ 654
Rental expense 144 151 201 208 206 191 164
Total fixed charges
before capitalized
interest 685 726 956 996 964 990 818
Capitalized interest 2 4 5 17 3 - -
Total fixed charges $ 687 $ 730 $ 961 $1,013 $ 967 $ 990 $ 818
Earnings available for fixed
charges:
Earnings (****) $ 959 $ 681 $(227)$ 192 $ 939 $ 1,116 $1,136
Less undistributed
income in minority
owned companies (58) (57) (51) (52) (70) (60) (44)
Add fixed charges before
capitalized interest 685 726 956 996 964 990 818
Total earnings available
for fixed charges $1,586 $1,350 $ 678 $1,136 $1,833 $2,046 $1,910
Ratio of earnings to
fixed charges (1)(2) 2.31 1.85 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)
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
XEROX CREDIT CORPORATION'S SEPTEMBER 30, 1994, FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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