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, 1996
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
10% Notes due 1999 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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:
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, 1996
Common Stock 2,000
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS J(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
THIS DOCUMENT CONSISTS OF 12 PAGES
(1)
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Millions)
Three Months Ended
March 31,
1996 1995
Earned income:
Contracts and notes receivable $ 88 $ 92
Expenses:
Interest 52 53
Operating and administrative 4 3
Total expenses 56 56
Income before income taxes 32 36
Provision for income taxes 13 15
Net income $ 19 $ 21
See accompanying notes.
(2)
<PAGE>
XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
ASSETS
March 31, December 31,
1996 1995
Cash and cash equivalents $ - $ -
Investments:
Contracts receivable 4,152 4,084
Notes receivable - Xerox and affiliates 129 189
Unearned income (510) (495)
Allowance for losses (120) (127)
Total investments 3,651 3,651
Net assets of discontinued operations 173 183
Deferred Income Taxes and Other assets 2 3
Total assets $ 3,826 $ 3,837
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 1,446 $ 875
Current portion of notes payable after one year 510 868
Notes payable after one year 1,184 1,411
Notes payable after one year-Xerox and affiliates 75 75
Due to Xerox Corporation, net 57 52
Accounts payable and accrued liabilities 57 56
Total liabilities 3,329 3,337
Shareholder's Equity:
Common stock, no par value, 2,000 shares
authorized, issued, and outstanding 23 23
Additional paid-in capital 219 219
Retained earnings 255 258
Total shareholder's equity 497 500
Total liabilities and shareholder's equity $ 3,826 $ 3,837
See accompanying notes.
(3)
<PAGE>
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
Three Months Ended
March 31,
1996 1995
Cash Flows from Operating Activities
Net income $ 19 $ 21
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net change in operating assets and liabilities 67 (30)
Net cash provided by (used in) operating activities 86 (9)
Cash Flows from Investing Activities
Purchases of investments (544) (529)
Proceeds from investments 484 480
Net collections from discontinued operations 10 5
Net cash used in investing activities (50) (44)
Cash Flows from Financing Activities
Change in short-term debt, net 571 (96)
Proceeds from long-term debt - 310
Principal payments of long-term debt (585) (150)
Dividends (22) (10)
Net cash (used in) provided by financing activities (36) 54
Increase in cash and cash equivalents - 1
Cash and cash equivalents, beginning of period - -
Cash and cash equivalents, end of period $ - $ 1
See accompanying notes.
(4)
<PAGE>
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, 1995 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 to the
current year presentation.
(2) During the first three months of 1996, the Company redeemed, at
maturity, $200 million of 6.25% notes, $25 million of 5.27% notes, $25
million of 5.28% notes, $50 million of 5.20% notes and $285 million of
variable rate notes.
In addition, on April 15, 1996 the Company redeemed at par $150 million
of 10.125% notes due 1999.
(3) The terms of a Support Agreement with Xerox provide that the Company
will receive from Xerox income maintenance payments, to the extent
necessary, so that the Company's earnings shall not be less than 1.25
times its fixed charges. For purposes of this calculation, both
earnings and fixed charges are as defined in Section 1404 (formerly
Section 81(2)) of the New York Insurance Law. In addition, the
agreement requires that Xerox retain 100 percent ownership of the
Company's voting capital stock.
(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. These receivables arise primarily from Xerox equipment being sold
under installment sales and sales-type leases. 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 first quarter of 1996
was $88 million versus $92 million in the corresponding period in 1995. The
decrease is primarily due to smaller total portfolio of contracts receivable
at March 31, 1996 than at March 31, 1995 and a reduction in the interest rate
spread on purchased contracts. The smaller portfolio is primarily due to
relatively lower equipment sales by Xerox in 1995 resulting from a
realignment of the Xerox United States Customer Operations sales force.
First quarter interest expense decreased to $52 million in 1996 from
$53 million in the same period in 1995. This decrease is principally
attributable to a reduction in total debt related to the smaller portfolio
size.
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 process 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 in order to ensure an adequate spread between
interest income and interest expense.
Operating and administrative expenses were $4 million for the first
quarter of 1996 and $3 million for the first quarter of 1995. These expenses
are primarily the costs to administer the contracts receivable purchased from
Xerox.
The effective income tax rate for continuing operations for the
first three months of 1996 and 1995, was 40.6 percent and 41.7 percent,
respectively.
(6)
<PAGE>
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 March 31, 1996, the Company received net cash proceeds
of $2,455 million, including $10 million in the 1996 first quarter, 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.
During the first three months of 1996, the Company reduced its net
assets of discontinued operations by approximately $10 million, primarily
through contractual maturities and the sale of one of its subsidiaries.
Since approximately $55 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 continue to be slow. 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 March 31, 1996 the Company and Xerox have joint access to a $5
billion revolving credit agreement with various banks, which expires in 2000.
Any amounts borrowed under this facility would be at rates based, at the
borrower's option, on spreads above certain reference rates such as LIBOR and
Federal funds rates.
At March 31, 1996, the Company had domestic shelf capacity of $1
billion. In addition, a $1 billion Euro-debt facility is available to both
Xerox and the Company of which $547 million remained unused at March 31,
1996. The Company and Xerox are in the process of increasing the size of
their Euro-debt facility from $1 billion to $2 billion thereby effectuating a
$1 billion increase in unused capacity.
Cash provided by operating activities was $86 million in the first
three months of 1996, compared to $9 million used in operating activities
during the same period in 1995. The change is primarily due to increased
intercompany receipts in the first quarter of 1996.
Cash used in investing activities was $50 million during the first
three months of 1996, compared with $44 million during the same period in
1995.
Cash used in financing activities was $36 million in the first three
months of 1996 compared to $54 million provided during the same period in
1995. The proceeds from the higher net collections of intercompany
receivables in 1996 over 1995 were used to reduce debt.
(7)
<PAGE>
XEROX CREDIT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
(Continued)
The Company believes that cash provided by continuing operations, cash
available under its commercial paper program supported by its credit
facility, and its readily available access to the capital markets are more
than sufficient for its funding needs. New borrowing associated with the
financing of customer purchases of Xerox equipment will continue and
decisions regarding the size and timing of any new term debt financing will
be made based on cash flows, match funding needs, refinancing requirements
and capital market conditions.
The Company intends to continue to match fund its contracts receivable.
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 order to match the duration of its assets, the Company
issues variable-rate and fixed-rate medium term notes which are swapped to
commercial paper rates.
As of March 31, 1996, the Company's debt-to-equity ratio was 6.5 to 1.
The Company's practice is to maintain a debt-to-equity ratio of approximately
6.5 to 1.
(8)
<PAGE>
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 (Electronic Form Only)
(b) Reports on Form 8-K.
None
(9)
<PAGE>
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.
XEROX CREDIT CORPORATION
BY_/s/ George R. Roth___
George R. Roth, Vice President,
Treasurer and Chief Financial Officer
May 9, 1996
(10)
<PAGE>
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,
1996 1995 1995 1994 1993 1992 1991
Income before income taxes $ 32 $ 36 $ 119 $ 147 $ 154 $ 158 $ 164
Fixed Charges:
Interest expense
Xerox debt 1 1 6 5 4 2 -
Other debt 51 52 213 197 205 210 200
Total fixed charges 52 53 219 202 209 212 200
Earnings available for
fixed charges $ 84 $ 89 $ 338 $ 349 $ 363 $ 370 $ 364
Ratio of earnings to
fixed charges (1) 1.62 1.68 1.54 1.73 1.74 1.75 1.82
(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 had 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. Beginning in 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 leasing businesses.
(11)
<PAGE>
Exhibit 12(b)
XEROX CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Three Months ended
March 31, Year ended December 31,
1996 1995 1995 1994 1993* 1992 1991
Fixed charges:
Interest expense $ 148 $ 137 $ 605 $ 520 $ 540 $ 627 $ 596
Rental expense 35 41 142 170 180 187 178
Total fixed charges
before capitalized
interest 183 178 747 690 720 814 774
Capitalized interest - - - 2 5 17 3
Total fixed charges $ 183 $ 178 $ 747 $ 692 725 $ 831 $ 777
Earnings available for fixed
charges:
Earnings ** $ 404 $ 380 $1,979 $1,602 (193)$1,183 $1,035
Less undistributed
income in minority
owned companies (20) (13) (90) (54) (51) (52) (70)
Add fixed charges before
capitalized interest 183 178 747 690 720 814 774
Total earnings available
for fixed charges $ 567 $ 545 $2,636 $2,238 $ 476 $1,945 $1,739
Ratio of earnings to
fixed charges (1)(2) 3.10 3.06 3.53 3.23 0.66 2.34 2.24
(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
historical levels assigned to the businesses when they were continuing
operations adjusted for subsequent paydowns. The discontinued
operations consist of Xerox' Insurance and Other Financial Services
businesses and its real-estate development and third-party financing
businesses.
(2) Xerox' ratio of earnings to fixed charges includes the effect of,
Xerox' finance subsidiaries which primarily finance Xerox equipment.
Financing businesses are more highly leveraged and, therefore, tend to
operate at lower earnings to fixed charges ratio levels than do non-
financial businesses.
* 1993 earnings were inadequate to cover fixed charges. The coverage
deficiency was $249 million.
** Sum of "Income (Loss) before Income Taxes, Equity Income and Minorities'
Interests" and "Equity in Net Income of Unconsolidated Affiliates."
(12)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XEROX
CREDIT CORPORATION'S MARCH 31, 1996 FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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