<PAGE>
FORM 10-Q/A
Amendment No. 1
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, 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 October 31, 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)
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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,
1995 1994 1995 1994
Earned income:
Contracts and notes receivable $ 87 $ 91 $ 267 $ 273
Expenses:
Interest 57 52 165 154
Operating and administrative 3 2 10 9
Total expenses 60 54 175 163
Income before income taxes 27 37 92 110
Provision for income taxes 11 15 37 45
Net income $ 16 $ 22 $ 55 $ 65
See accompanying notes.
(2)
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XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
September 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ - $ -
Investments:
Contracts receivable 4,058 4,203
Notes receivable - Xerox and affiliates 183 59
Unearned income (425) (434)
Allowance for losses (123) (129)
Total investments 3,693 3,699
Net assets of discontinued operations 196 289
Other assets 2 2
Total assets $ 3,891 $ 3,990
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 955 $ 1,657
Current portion of notes payable
after one year 587 403
Notes payable after one year 1,694 1,246
Notes payable after one year - Xerox affiliates 75 75
Due to Xerox Corporation, net - 39
Accounts payable and accrued liabilities 66 56
Deferred income taxes 9 9
Total liabilities 3,386 3,485
Shareholder's equity:
Common stock, no par value, 2,000 shares
authorized, issued and outstanding 23 23
Additional paid-in capital 219 145
Retained earnings 262 336
Cumulative translation adjustment 1 1
Total shareholder's equity 505 505
Total liabilities and shareholder's
equity $ 3,891 $ 3,990
See accompanying notes.
(3)
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XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Nine Months Ended
September 30,
1995 1994
Cash Flows from Operating Activities
Net income $ 55 $ 65
Adjustments to reconcile net income to net
cash (used in) / provided by operating activities:
Net change in operating assets
and liabilities (80) (30)
Net cash (used in)/provided by operating activities (25) 35
Cash Flows from Investing Activities
Purchases of investments (1,028) (1,120)
Proceeds from collections of investments 1,159 1,114
Net collections from discontinued operations 19 43
Net cash provided by investing activities 150 37
Cash Flows from Financing Activities
Decrease in short-term debt, net (703) (117)
Proceeds from long-term debt 1,033 486
Principal payments on long-term debt (400) (385)
Dividends (55) (55)
Net cash used in financing activities (125) (71)
Net Change
Increase in cash and cash equivalents - 1
Cash and cash equivalents, beginning of period - 1
Cash and cash equivalents, end of period $ - $ 2
Supplemental disclosure of non-cash activities:
As described in Note 1, the Company dividended its $74 million investment
in Xerox Financial Services Life Insurance Company to its parent company
in 1995. The parent company then made a capital contribution of $74 million
to the Company by issuing a $74 million interest bearing note to the
Company.
See accompanying notes.
(4)
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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.
Certain prior year balances have been reclassified to conform with the
current year presentation.
In June 1995, the Company's parent, Xerox Financial Services, Inc.(XFSI),
sold Xerox Financial Services Life Insurance Company (XFSLIC). In
connection with the sale, the Company's $74 million investment in XFSLIC,
reported as a component of net assets of discontinued operations at the
time of the sale, was dividended to XFSI. XFSI in turn made a capital
contribution of $74 million to the Company by issuing a $74 million
interest-bearing note to the Company. This note is an asset of the
Company's continuing operations.
(2) During the first nine months of 1995, the Company sold an aggregate of
$1,033 million in principal amount of medium-term notes. Of this amount,
$503 million are floating-rate notes maturing in 1997 ($330), 1998 ($120)
and 2000 ($53) and bearing interest rates based primarily on spreads
above certain reference rates such as the Prime and U.S. Federal Funds
Rates. The remaining $530 million are fixed-rate notes which mature in
1996 ($130), 1998 ($100) and 2000 ($300),of which $430 million have been
swapped into variable rate obligations maturing on the same dates.
Interest rates are based on spreads from commercial paper.
As more fully described on page 6, the Company "match funds" its
contracts receivable by swapping substantially all of its variable-rate
commercial paper and medium term notes into fixed rates of interest.
(3) During the first nine months of 1995, the Company redeemed, at maturity,
$150 million of 8.75% notes and $250 million of variable rate 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 equals
at least 1.25 times the Company's fixed charges. The Support Agreement
specifically provides that Xerox does not directly or indirectly guaranty
any indebtedness, liability or obligation of the Company.
(5)
<PAGE>
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. The Company purchases from
Xerox all contract receivables due from the Federal Government and commercial
customers. New receivables are purchased monthly. The purchase price of the
receivables is calculated as the present value of the future cash flows. The
interest rate utilized to discount the cash flows is determined by certain
referenced interest rates plus a prescribed spread. The interest rate
utilized for the cost calculation is adjusted monthly as each new portfolio of
receivables is purchased.
Earned income from contracts receivable for the third quarter of 1995
was $87 million versus $91 million in the corresponding period in 1994, and
for the nine-month periods ended September 30, 1995 and 1994, was $267 and
$273 million, respectively. The decreases are primarily due to a reduction in
the size of the portfolios of contracts receivable purchased from Xerox and a
reduction in the interest rate spread on the contracts being purchased.
Third quarter interest expense increased to $57 million in 1995 from
$52 million in the same period in 1994. For the nine-month period ended
September 30, 1995, interest expense increased to $165 million from $154
million in 1994. These increases are principally attributable to, beginning
in 1995, the allocation to continuing operations of interest expense
previously allocated to discontinued operations, higher interest expense
resulting from the timing of settlements of intercompany liabilities and
sundry other items.
Since substantially all of the Company's contracts receivable earn fixed
rates of interest, the Company "match funds" the contracts by swapping
variable-rate commercial paper and medium term notes into fixed rates of
interest for specified maturities. Match funding effectively "locks in"
interest spreads and eliminates the risk of shrinking interest margins in a
rising interest rate environment. Conversely, this practice effectively
eliminates the opportunity to increase margins when interest rates are
declining. The Company intends to continue to match its contracts receivable
and indebtedness in order to maintain the relationship between interest income
and interest expense.
Operating and administrative expenses were $3 million for the third
quarter of 1995 and $2 million for the third quarter of 1994. For the nine-
month periods ended September 30, 1995 and 1994, operating and administrative
expenses totaled $10 million and $9 million, respectively. These expenses are
primarily the costs to administer the contracts receivable purchased from
Xerox.
The effective income tax rate for continuing operations for each of the
first nine months of 1995 and 1994, was 40.5 percent.
(6)
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XEROX CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
Discontinued Operations
Since their discontinuance in 1990, the Company has made substantial
progress in disengaging from the real estate and third-party financing
businesses. Through September 30, 1995, the Company received net cash
proceeds of $2,432 million from the sale of discontinued business units, asset
securitizations, sales, and runoff collection activities. The amounts
received have been 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, 1995, the Company was contingently liable for approximately
$16 million of receivables under recourse provisions associated with
securitization transactions.
During the first nine months of 1995, the Company reduced its net
assets of discontinued operations by approximately $93 million, primarily
through the disposal of the Company's $74 million investment in XFSLIC and
contractual maturities.
Since approximately $58 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 than in past 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 September 30, 1995 the Company and Xerox had joint access to three
revolving credit agreements totaling $5 billion with various banks, which
expire from 1995 to 1999. The interest on amounts borrowed under these
facilities would, at the Company's option, be based on certain reference
rates such as LIBOR and the U.S. Federal Funds rates, plus a prescribed
spread.
Cash used in operating activities was $25 million in the first nine
months of 1995, compared to $35 million provided by operating activities
during the same period in 1994. The change is primarily due to the timing
of intercompany receipts and disbursements which resulted in a higher net
intercompany receivable on September 30, 1995 than on September 30, 1994.
Cash provided by investing activities was $150 million during the first
nine months of 1995, compared with $37 million provided during the same period
in 1994. The increase in cash provided by investing activities is principally
the result of a lower level of purchased contracts receivable in 1995.
(7)
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XEROX CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
Cash used in financing activities was $125 million in the first nine
months of 1995 compared to $71 million used during the same period in 1994.
This change is largely due to the decreased net proceeds from debt due to a
reduced level of investments in Xerox' contracts receivable.
The Company believes that cash provided by operations, liquidity
available
under its commercial paper program supported by its credit facilities, and its
readily available access to the capital markets are more than sufficient to
meet its ongoing funding needs.
Borrowing associated with the financing of customer purchases of Xerox
equipment is expected to increase during the last quarter of 1995. This
growth will be partially offset by proceeds from discontinued third-party
financing and leasing asset runoff. The timing, amount and form of new short-
and longer-term debt financing will be determined based upon the Company's
funding needs and prevailing debt market conditions.
As of September 30, 1995, the Company's debt-to-equity ratio was 6.41
to 1. The Company manages its leverage using a debt-to-equity
guideline of 6.5 to 1.
The Company intends to continue to match its contracts receivable and
indebtedness. 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, in connection with the issuance of certain
medium term notes, the Company has entered into interest rate
swap agreements to transform fixed rate term debt to variable rate "synthetic
commercial paper", and other swap agreements which effectively convert
variable-rate debt tied to the Prime rate, the Federal Funds rate, etc. into
variable-rate debt that is indexed to commercial paper rates.
(8)
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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.
None
(9)
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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) George R. Roth, Vice President,
Treasurer and Chief Financial Officer
(DATE) November 13, 1995
(10)
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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,
1995 1994 1994 1993 1992 1991 1990
Income before income taxes $ 92 $ 110 $147 $ 154 $ 158 $ 164 $ 182
Fixed Charges:
Interest expense
Xerox debt 4 3 5 4 2 - 2
Other debt 161 151 197 205 210 200 205
Total fixed charges 165 154 202 209 212 200 207
Earnings available for
fixed charges $ 257 $ 264 $ 349 $ 363 $ 370 $ 364 $ 389
Ratio of earnings to
fixed charges (1) 1.56 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. Debt has been assigned to
discontinued operations based on the net assets of the discontinued
operations and the debt to equity ratios that existed at the time the
assets were acquired. Management believes that this allocation method
is reasonable. For 1995, the amount of interest expense that would have
been allocated to discontinued operations is insignificant and therefore
is now reported within continuing operations. The discontinued
operations consist of the Company's real estate development and related
financing operations and its third-party financing and leasing
businesses.
(11)
<PAGE>
Exhibit 12(b)
XEROX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Nine Months ended
September 30, Year ended December 31,
1995 1994 1994 1993(*) 1992 1991 1990
Fixed charges:
Interest expense $ 620 $ 541 $ 732 755 $ 788 $ 758 $ 799
Rental expense 134 144 190 201 208 206 191
Total fixed charges
before capitalized
interest 754 685 922 956 996 964 990
Capitalized interest - 2 2 5 17 3 -
Total fixed charges $ 754 $ 687 $ 924 961 $1,013 $ 967 $ 990
Earnings available for fixed
charges:
Earnings (**) $1,163 $ 959 $1,558 (227) $ 192 $ 939 $1,116
Less undistributed
income in minority
owned companies (99) (58) (54) (51) (52) (70) (60)
Add fixed charges before
capitalized interest 754 685 922 956 996 964 990
Total earnings available
for fixed charges $1,818 $1,586 $2,426 678 $1,136 $1,833 $2,046
Ratio of earnings to
fixed charges (1)(2) 2.41 2.31 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. Debt has been assigned to discontinued operations based on
the net assets of the discontinued operations and debt to equity ratios
that existed at the time the assets were acquired. Management believes
that this allocation method is reasonable. 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.
(2) Xerox' ratio of earnings to fixed charges includes the effect of
the Xerox' finance subsidiaries which primarily finance Xerox equipment.
Due to the nature of their operations, financing traditionally operate at
lower earnings to fixed charge ratio levels than do non-financing
businesses.
(12)
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Exhibit 12(b)
(Cont'd)
(*) 1993 earnings were inadequate to cover fixed charges. The coverage
deficiency was $238 million.
(**) Sum of "Income before Income Taxes, Equity Income and Minorities
Interests" from Document Processing; "Income (loss) before Income Taxes"
from Insurance and "Equity in Net Income of Unconsolidated Affiliates."
(13)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
XEROX CREDIT CORPORATION'S SEPTEMBER 30, 1995 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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