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: March 31, 1995
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 April 30, 1995
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
March 31,
1995 1994
Earned income:
Contracts receivable $ 92 $ 93
Expenses:
Interest 53 52
Operating and administrative 3 4
Total expenses 56 56
Income before income taxes 36 37
Provision for income taxes 15 15
Net income $ 21 $ 22
See accompanying notes.
(2)
XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
ASSETS
March 31, December 31,
1995 1994
Cash and cash equivalents $ 1 $ -
Investments:
Contracts receivable 4,276 4,203
Notes receivable - Xerox and affiliates 86 59
Unearned income (459) (434)
Allowance for losses (128) (129)
Total investments 3,775 3,699
Net assets of discontinued operations 284 289
Other assets 2 2
Total assets $ 4,062 $ 3,990
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 1,561 $ 1,657
Current portion of notes payable
after one year 436 403
Notes payable after one year 1,373 1,246
Notes payable after one year- Xerox and affiliates 75 75
Due to Xerox Corporation, net 39 39
Accounts payable and accrued liabilities 53 56
Deferred income taxes 9 9
Total liabilities 3,546 3,485
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 347 336
Cumulative translation adjustment 1 1
Total shareholder's equity 516 505
Total liabilities
and shareholder's equity $ 4,062 $ 3,990
See accompanying notes.
(3)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Three Months Ended
March 31,
1995 1994
Cash Flows from Operating Activities
Net income $ 21 $ 22
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Net change in operating assets
and liabilities (30) (10)
Net cash (used in) provided by operating activities (9) 12
Cash Flows from Investing Activities
Purchases of investments (529) (546)
Proceeds from collections of investments 480 464
Net collections from discontinued operations 5 20
Net cash used in investing activities (44) (62)
Cash Flows from Financing Activities
(Decrease) in short-term debt, net (96) (164)
Proceeds from long-term debt 310 336
Principal payments on long-term debt (150) (102)
Dividends (10) (20)
Net cash provided by financing activities 54 50
Net Change
Cash and cash equivalents, increased 1 -
Cash and cash equivalents, beginning of period - 1
Cash and cash equivalents, end of period $ 1 $ 1
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, 1994 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.
In January 1995, Xerox signed a definitive agreement for the sale of
Xerox Financial Services Life Insurance Company (XFSLIC), a subsidiary of
the Company's parent, Xerox Financial Services, Inc. The Company's $74
million investment in XFSLIC, representing a 26% interest, is reported
as a component of net assets of discontinued operations on the
consolidated balance sheet. Closing of the sale is expected in the
second quarter of 1995. The Company anticipates that the ultimate
disposition of this investment will not result in a net loss.
(2) During the first quarter of 1995, the Company sold an aggregate of
$310 million in principal amount of medium-term notes. Of this amount,
$130 million were floating rate notes which mature in 1997 and bear
interest rates based primarily on spreads above certain reference rates
such as LIBOR and U.S.Federal Funds Rates. The remaining notes were
fixed rate notes which mature in 1996 and 2000 and have been swapped
into variable rate instruments maturing on the same dates. Interest
rates are based on spreads from commercial paper.
(3) During February 1995, the Company redeemed, at maturity, $150 million
of 8.75% Notes.
(4) 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 first quarter of 1995 was $92 million versus $93
million in the corresponding period in 1994.
First quarter interest expense was $53 million in 1995 versus $52
million in 1994.
Operating and administrative expenses were $3 million for the first
quarter of 1995 and $4 million for the first quarter of 1994.These expenses
primarily represent the costs associated with the administration of contracts
receivable purchased from Xerox.
The effective income tax rate for the first quarter of 1995 was 40.5
percent, consistent with the first quarter of 1994.
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, 1994, the Company
received net cash proceeds of $841 million from the sale of discontinued
business units and assets, from several asset securitizations, and
from 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 March 31, 1995, the
Company remains contingently liable for approximately $38 million of
receivables under recourse provisions associated with the securitization
transactions.
During the first quarter of 1995, the Company reduced its net assets
of discontinued operations by approximately $5 million, primarily through
contractual maturities. The related net proceeds were largely used to repay
short-term indebtedness.
Since approximately $62 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 1995 and in future years, compared with 1994 and prior
years. The Company currently 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 March 31, 1995 the Company and Xerox have joint access to three
revolving credit agreements totaling $5 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 used in operating activities was $9 million in the first
quarter of 1995 compared to $12 million of cash provided during the same
period in 1994. The change is primarily due to the increase in the amount
receivable from Xerox.
Net cash of $44 million was used in investing activities during
the first quarter of 1995, compared with $62 million during the same
period in 1994. The decrease in cash used in investing activities is
principally the result of higher net collections from the Company's
investment in contracts receivable in 1995.
Cash provided by financing activities was $54 million in the first
quarter of 1995 compared to $50 million during the same period in
1994.
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 1995. 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 March 31, 1995, the Company's debt-to-equity ratio was
6.53 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) May 15, 1995
(9)
Exhibit 12 (a)
XEROX CREDIT CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Three Months Ended
March 31, Year Ended December 31,
1995 1994 1994 1993 1992 1991 1990
Income before income taxes $ 36 $ 37 $ 147 $ 154 $ 158 $ 164 $ 182
Fixed Charges:
Interest expense
Xerox debt 1 1 5 4 2 - 2
Other debt 52 51 197 205 210 200 205
Total fixed charges 53 52 202 209 212 200 207
Earnings available for
fixed charges $ 89 $ 89 $ 349 363 $ 370 $ 364 $ 389
Ratio of earnings to
fixed charges (1) 1.68 1.71 1.73 1.74 1.75 1.82 1.88
(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)
Three Months ended
March 31, Year ended December 31,
1995 1994 1994 1993(*)1992(**)1991(***)1990
Fixed charges:
Interest expense $ 200 $ 181 $ 732 755 $ 788 $ 758 $ 799
Rental expense 46 48 190 201 208 206 191
Total fixed charges
before capitalized
interest 246 229 922 956 996 964 990
Capitalized interest - 1 2 5 17 3 -
Total fixed charges $ 246 $ 230 $ 924 961 $1,013 $ 967 $ 990
Earnings available for fixed
charges:
Earnings (****) $ 311 $ 256 $1,558 (227) $ 192 $ 939 $ 1,116
Less undistributed
income in minority
owned companies (13) ( 2) (54) (51) (52) (70) (60)
Add fixed charges before
capitalized interest 246 229 922 956 996 964 990
Total earnings available
for fixed charges $ 544 $ 483 $ 2,426 678 $1,136 $1,833 $2,046
Ratio of earnings to
fixed charges (1)(2) 2.21 2.10 2.63 0.71 1.12 1.90 2.07
(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 a Document Processing work-force reduction. Excluding
this charge, the ratio was 2.08.
(****) Sum of income before income taxes and income attributable to minority
owned companies.
(12)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
XEROX CREDIT CORPORATION'S MARCH 31, 1995 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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