FORM 10-Q/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
Quarterly Report on Form 10-Q For the Quarter Ended June 30, 1995
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)
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Earned income:
Contracts receivable $ 88 $ 87 $ 180 $ 180
Expenses:
Interest 55 50 108 102
Operating and administrative 4 3 7 7
Total expenses 59 53 115 109
Income before income taxes 29 34 65 71
Provision for income taxes 11 15 26 30
Net income $ 18 $ 19 $ 39 $ 41
See accompanying notes.
(2)
XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
June 30, December 31,
1995 1994
ASSETS
Cash and cash equivalents $ 1 $ -
Investments:
Contracts receivable 4,143 4,203
Notes receivable - Xerox and affiliates 214 59
Unearned income (441) (434)
Allowance for losses (126) (129)
Total investments 3,790 3,699
Net assets of discontinued operations 198 289
Other assets 3 2
Total assets $ 3,992 $ 3,990
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 1,280 $ 1,657
Current portion of notes payable
after one year 357 403
Notes payable after one year 1,702 1,246
Notes payable after one year- Xerox and affiliates 75 75
Due to Xerox Corporation, net 1 39
Accounts payable and accrued liabilities 56 56
Deferred income taxes 7 9
Total liabilities 3,478 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 271 336
Cumulative translation adjustment 1 1
Total shareholder's equity 514 505
Total liabilities and shareholder's
equity $ 3,992 $ 3,990
See accompanying notes.
(3)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Six Months Ended
June 30,
1995 1994
Cash Flows from Operating Activities
Net income $ 39 $ 41
Adjustments to reconcile net income to
net cash used in operating activities:
Net change in operating assets
and liabilities (122) (52)
Net cash used in operating activities (83) (11)
Cash Flows from Investing Activities
Purchases of investments (703) (800)
Proceeds from collections of investments 767 740
Net collections from discontinued operations 17 39
Net cash provided by (used in) investing activities 81 (21)
Cash Flows from Financing Activities
Decrease in short-term debt, net (377) (231)
Proceeds from long-term debt 660 487
Principal payments on long-term debt (250) (184)
Dividends (30) (40)
Net cash provided by financing activities 3 32
Net Change
Increase in cash and cash equivalents 1 -
Cash and cash equivalents, beginning of period - 1
Cash and cash equivalents, end of period $ 1 $ 1
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 $74 million capital infusion in
the Company by tendering a note receivable to the Company.
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.
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 infusion of $74 million to the Company by tendering an interest-
bearing note for the full $74 million.
(2) During the first half of 1995, the Company sold an aggregate of
$660 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 $530 million
were fixed rate notes which mature in 1996, 1998 and 2000, of which $430
million have been swapped into variable rate instruments maturing on
the same dates. Interest rates are based on spreads from commercial
paper.
(3) The Company redeemed, at maturity, $150 million of 8.75% notes and
$100 million of variable rate bonds, in February and June 1995,
respectively.
(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.
(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 second quarter of 1995 was $88 million versus
$87 million in the corresponding period in 1994, and for each of the six-month
periods ended June 30, 1995 and 1994, was $180 million.
Second quarter interest expense increased to $55 million in 1995 from
$50 million in the same period in 1994. For the six-month period ended June
30, 1995, interest expense increased to $108 million from $102 million in
1994. This increase resulted from higher interest rates partially offset by
decreased borrowings resulting from the Company's reduced investment in
contracts receivable. 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. This practice is
employed because it effectively "locks in" a spread 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 to maintain the
relationship between interest income and interest expense.
Operating and administrative expenses were $4 million for the second
quarter of 1995 and $3 million for the second quarter of 1994. For each of
the six-month periods ended June 30, 1995 and 1994, operating and
administrative expenses totaled $7 million. 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
1995 was 40.5 percent, versus 42.3 percent for 1994. The 1995 decrease is
attributed to non-deductible equity losses recorded by the Company in 1994
not present in 1995.
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, asset securitizations, sales, and runoff 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, 1995, the Company remains contingently liable
for approximately $27 million of receivables under recourse provisions
associated with securitization transactions.
During the first six-months of 1995, the Company reduced its net assets
of discontinued operations by approximately $91 million, primarily through the
disposal of the Company's $74 million investment in XFSLIC and contractual
maturities.
(6)
XEROX CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
Since approximately $60 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 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 June 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 Federal funds rates, plus a prescribed spread.
Cash used in operating activities was $83 million in the first half of
1995, compared to $11 million used in 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 June 30, 1995 than on June 30, 1994.
Cash provided by investing activities was $81 million during the first
half of 1995, compared with $21 million used 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.
Cash provided by financing activities was $3 million in the first
half of 1995 compared to $32 million during the same period in 1994.
This change is largely due to the decreased net proceeds from debt used
to fund the Company's decreased 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 to
meet its ongoing funding needs.
Borrowing associated with the financing of customer purchases of Xerox
equipment is expected to increase during the remainder 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 June 30, 1995, the Company's debt-to-equity ratio was 6.50 to 1.
The Company manages its operations over time using a debt-to-equity guideline
of 6.5 to 1.
(7)
XEROX CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
The Company intends to continue to match its contracts receivable and
indebtedness to maintain the current 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.
(8)
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)
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amendment 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
(DATE) October 19, 1995
(10)
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,
1995 1994 1994 1993 1992 1991 1990
Income before income taxes $ 65 $ 71 $147 $ 154 $ 158 $ 164 $ 182
Fixed Charges:
Interest expense
Xerox debt 3 2 5 4 2 - 2
Other debt 105 100 197 205 210 200 205
Total fixed charges 108 102 202 209 212 200 207
Earnings available for
fixed charges $ 173 $ 173 $ 349 $ 363 $ 370 $ 364 $ 389
Ratio of earnings to
fixed charges (1) 1.60 1.70 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 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 the Company's real
estate development and related financing operations and its third-party
financing and leasing businesses.
(11)
Exhibit 12(b)
XEROX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Six Months ended
June 30, Year ended December 31,
1995 1994 1994 1993(*)1992 1991 1990
Fixed charges:
Interest expense $ 417 $ 360 $ 732 755 $ 788 $ 758 $ 799
Rental expense 90 96 190 201 208 206 191
Total fixed charges
before capitalized
interest 507 456 922 956 996 964 990
Capitalized interest - 1 2 5 17 3 -
Total fixed charges $ 507 $ 457 $ 924 961 $1,013 $ 967 $ 990
Earnings available for fixed
charges:
Earnings (**) $ 746 $ 595 $1,558 (227) $ 192 $ 939 $ 1,116
Less undistributed
income in minority
owned companies (63) (35) (54) (51) (52) (70) (60)
Add fixed charges before
capitalized interest 507 456 922 956 996 964 990
Total earnings available
for fixed charges $1,190 $1,016 $ 2,426 678 $1,136 $1,833 $2,046
Ratio of earnings to
fixed charges (1)(2) 2.35 2.22 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.
(12)
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.
(*) 1993 earnings were inadequate to cover fixed charges. The coverage
deficiency was $238 million.
(**) Income before income taxes and income in minority owned companies.
(13)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
XEROX CREDIT CORPORATION'S JUNE 30, 1995 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATMENTS.
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