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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: June 30, 1998
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 July 31, 1998
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 28 PAGES
(1)
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To the extent that this Form 10-Q Report contains forward-looking statements
and information relating to the Registrant, such statements are based on the
beliefs of management as well as assumptions made by and information currently
available to management. The words "anticipate," "believe," "estimate,"
"expect," "intends", "will" and similar expressions, as they relate to the
Registrant or the Registrant's management, are intended to identify forward-
looking statements. Such statements reflect the current views of the
Registrant with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected. The Registrant does not intend to update
these forward-looking statements.
(2)
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PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Millions)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Earned income:
Contracts and notes receivable $ 96 $ 90 $ 190 $ 178
Expenses:
Interest 58 55 117 108
Operating and administrative 2 3 5 6
Total expenses 60 58 122 114
Income before income taxes 36 32 68 64
Provision for income taxes 15 13 28 26
Net income $ 21 $ 19 $ 40 $ 38
See accompanying notes.
(3)
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XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Millions)
June 30, December 31,
1998 1997
(Unaudited)
ASSETS
Cash and cash equivalents $ - $ -
Investments:
Contracts receivable 5,169 4,796
Notes receivable - Xerox and affiliates 56 56
Unearned income (668) (623)
Allowance for losses (118) (131)
Total investments 4,439 4,098
Net assets of discontinued operations 47 58
Deferred income taxes and other assets 1 2
Total assets $ 4,487 $ 4,158
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 1,569 $ 1,428
Current portion of notes payable after one year 750 795
Notes Payable - Xerox and affiliates 542 161
Notes payable after one year 1,001 1,191
Due to Xerox Corporation, net 24 21
Accounts payable and accrued liabilities 31 34
Deferred income taxes 22 20
Total liabilities 3,939 3,650
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 306 266
Total shareholder's equity 548 508
Total liabilities and shareholder's equity $ 4,487 $ 4,158
See accompanying notes.
(4)
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XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Millions)
Six Months Ended
June 30,
1998 1997
Cash Flows from Operating Activities
Net income $ 40 $ 38
Adjustments to reconcile net income to net cash
provided by operating activities:
Net change in operating assets and liabilities 3 (5)
Net cash provided by operating activities 43 33
Cash Flows from Investing Activities
Purchases of investments (1,268) (973)
Proceeds from investments 927 835
Net collections from discontinued operations 11 42
Net cash used in investing activities (330) (96)
Cash Flows from Financing Activities
Change in commercial paper, net 141 618
Change in notes with Xerox and affiliates, net 381 (6)
Proceeds from long-term debt 335 200
Principal payments on long-term debt (570) (715)
Dividends - (34)
Net cash provided by financing activities 287 63
Increase in cash and cash equivalents - -
Cash and cash equivalents, beginning of period - -
Cash and cash equivalents, end of period $ - $ -
See accompanying notes.
(5)
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XEROX CREDIT CORPORATION
Notes to Consolidated Financial Statements
(1) The unaudited consolidated interim 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, 1997 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 current year
presentation.
(2) During the first six months of 1998, the Company redeemed the following
term debt (in millions):
7.125% notes $100
15.00% notes 50
Variable rate notes 320
Total debt redeemed at maturity 470
Redeemed prior to maturity 100
Total debt redeemed $570
(3) During the first six months of 1998, the Company sold at various dates a
total of $110 million of fixed and adjustable-rate notes which mature at
various dates in 2008, 2013, and 2018, and are first callable in 2000. The
company also sold $225 million of fixed rate notes which mature in 2000. The
interest rates on all of these notes have been swapped into LIBOR-based rates.
(4) 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) Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that companies disclose comprehensive income, which
includes net income, foreign currency translation adjustments, minimum pension
liability adjustments, and unrealized gains and losses on marketable
securities classified as available-for-sale. For the Company, comprehensive
income is the same as net income.
(6)
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XEROX CREDIT CORPORATION
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. These receivables arise primarily from
Xerox equipment sold under installment sales and sales-type leases.
Earned income from contracts and notes receivable was $96 million and $90
million for the second quarter of 1998 and 1997, respectively, and $190
million and $178 million for the first six months of 1998 and 1997,
respectively. The increase was due to a higher average portfolio of contracts
receivable in 1998 than in 1997, which was partially offset by a lower average
interest rate.
Interest expense was $58 million and $55 million for the second quarter of
1998 and 1997, respectively, and $117 million and $108 million for the first
six months of 1998 and 1997, respectively. The increase was primarily due to
the increase in debt related to the larger average portfolio of contracts
receivable in 1998, which was partially offset by a decrease in the cost of
funds.
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 interest rates 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 ensure an adequate spread between interest income and interest expense.
Operating and administrative expenses were $2 million and $3 million for the
second quarter of 1998 and 1997, respectively, and $5 million and $6 million
for the first six months of 1998 and 1997, respectively. These expenses are
incurred to administer the contracts receivable purchased from Xerox. The
reduction from the 1997 level primarily represents productivity measures that
have occurred during 1998.
The effective income tax rate was 41.2 percent and 40.6 percent for the first
six months of 1998 and 1997, respectively.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires companies to
recognize all derivatives as assets or liabilities measured at their fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. The Company does not expect this
Statement to have a material impact on our consolidated financial statements.
This Statement is effective for fiscal years beginning after June 15, 1999.
We will adopt this accounting standard beginning January 1, 2000.
(7)
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Discontinued Operations
Since their discontinuance in 1990, the Company has made substantial progress
in disengaging from the third party financing and real estate businesses.
Through June 30, 1998, the Company has received net cash proceeds of $2,581
million from the sale of discontinued business units, asset securitizations,
asset sales, and run-off collection activities. The amounts received have
been consistent with the Company's estimates in its disposal plan and were
primarily used to reduce the Company's indebtedness.
During the first six months of 1998 and 1997, the Company reduced net assets
of discontinued operations by $11 million and $42 million, respectively,
primarily through contractual maturities and cash sales.
A significant portion of the remaining $47 million portfolio represents
passive lease receivables with long-duration contractual maturities and unique
tax attributes. Accordingly, the Company expects that the wind-down of the
portfolio will continue to be a gradual process. 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.
Net cash provided by operating activities was $43 million and $33 million in
the first six months of 1998 and 1997, respectively. The growth in 1998
resulted from higher net income and the timing of 1997 interest payments.
Net cash used in investing activities was $330 million and $96 million during
the first six months of 1998 and 1997, respectively. The increase was the
result of more contracts receivable purchased in 1998 than in 1997. Cash
collections related to discontinued assets were lower as the asset base
continued to decline due to sales and contractual maturities.
Net cash provided by financing activities was $287 million and $63 million in
the first six months of 1998 and 1997, respectively. The increase was largely
a result of lower principal repayments and term debt issuance in 1998. Also
contributing to the increase was the absence of dividend payments to Xerox
during the first six months of 1998 because of the Company's need to preserve
capital to support its accelerated growth.
At June 30, 1998, the Company had registered domestic shelf capacity of $1,540
million. In addition, a $2 billion Euro-debt facility is available to the
Company, Xerox, Xerox Capital (Europe) plc, and Xerox Overseas Holdings
Limited, of which $993 million was unused at June 30, 1998.
The Company and Xerox have joint access to a $7 billion revolving credit
agreement with various banks, which expires in 2002. Up to $4 billion of this
revolver is also accessible by Xerox Capital (Europe) plc and Xerox Overseas
Holdings Limited. Any amounts borrowed under this facility would be at rates
based, at the borrower's option, on spreads above certain LIBOR reference
rates.
(8)
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The Company believes that cash provided by continuing operations, funding
available through its commercial paper program supported by its committed
credit facility, and its readily available access to the capital markets are
more than sufficient to enable the Company to meet its liquidity needs. New
borrowing associated with the financing of customer purchases of Xerox
equipment is expected to continue during the remainder of 1998 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 is exposed to market risk from changes in interest rates that
could affect results of operations and financial condition. To assist in
managing its interest rate exposure and match funding its principal assets,
the Company routinely enters into certain financial instruments, primarily
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 manage
its outstanding commercial paper, the Company opportunistically issues
variable and fixed-rate medium term notes which are swapped to attractive
LIBOR-based rates. The Company does not enter into derivative instrument
transactions for trading purposes and employs long-standing policies
prescribing that derivative instruments are only to be used to achieve a set
of very limited objectives.
During the first six months of 1998, the Company entered into interest rate
swap agreements that effectively convert $840 million of variable-rate debt
into fixed-rate debt. These agreements mature at various dates through 2003
and result in a weighted average interest rate of 5.78 percent. The Company
also entered into interest rate swap agreements during the first half of 1998
that effectively convert $335 million of fixed and adjustable-rate debt into
variable-rate debt indexed to LIBOR rates. Of these, $225 million mature in
2000 and $110 million mature on various dates beginning in 2008 and ending in
2018. Each of the swaps that is scheduled to mature beyond 2000 is cancelable
by the counterparty on interest payment dates beginning in 2000. Cancellation
dates within the swap agreements conform to exercise dates of call options
embedded in the Company's fixed and adjustable-rate debt.
The Company's interest rate hedging is typically unaffected by changes in
market conditions as swaps are normally held to maturity consistent with the
Company's objective to lock in interest rate spreads on the underlying
transactions.
As of June 30, 1998, the debt-to-equity ratio was approximately 7.0 to 1,
consistent with the Company's guideline. Under the terms of the Amended and
Restated Operating Agreement, Xerox has the option, but no obligation, to
transfer additional funds to the Company in order to maintain such ratio at
the guideline level. No such transfers were made during the period covered by
this Report.
(9)
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3 (a) Articles of Incorporation of Registrant filed
with the Secretary of State of Delaware on
June 23, 1980.
Incorporated by reference to Exhibit 3(a) to
Registration Statement No. 2-71503.
(b) By-Laws of Registrant, as amended through
September 1, 1992.
Incorporated by reference to Exhibit 3(b)
to Registrant's Quarterly Report
for the Quarter ended March 31, 1997.
Exhibit 10 (a) Amended and Restated Operating Agreement
originally made and entered into as of November
1, 1980, amended and restated as of June 30,
1998 between Registrant and Xerox.
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
(10)
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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.
XEROX CREDIT CORPORATION
August 13, 1998 BY: /s/ George R. Roth
George R. Roth
Vice President, Treasurer and
Chief Financial Officer
(11)
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Exhibit 10(a)
AMENDED AND RESTATED OPERATING AGREEMENT
This Amended and Restated Operating Agreement (the "Agreement"), originally
made and entered into as of November 1, 1980, amended and restated as of June
30, 1998, by and between XEROX CORPORATION, a New York corporation ("Xerox")
and XEROX CREDIT CORPORATION, a Delaware corporation ("Credit").
WITNESSETH:
WHEREAS, Xerox is now and will become in the future the owner of numerous
accounts receivable arising out of credit sales and leases of Xerox during the
normal course of its business; and
WHEREAS, Xerox desires to sell and Credit desires to purchase from time to
time a portion of such accounts receivable; and
WHEREAS, Credit desires to appoint Xerox as agent to bill and collect such
accounts receivable as Credit may from time to time purchase from Xerox;
NOW, THEREFORE, in consideration of the mutual promises herein contained, the
parties hereto agree as follows:
1. Definitions. For the purposes of this Agreement, the following
definitions are used:
(a) "Accounting Period" means one calendar month unless a different period
of time is agreed upon by the parties in writing.
(b) "Assigned Obligation" means the amount (or portion) of any Obligation
which, as of any date, Xerox sells to Credit and, unless otherwise specified
by the parties, shall be deemed to include an Obligation which arises from an
extension, explicit or implicit, of the original term of a lease which gave
rise to an Assigned Obligation.
(c) "Book Value" of any Assigned Obligation means, as of any given date, the
value of such Assigned Obligation to Credit as reflected on the books and
records of Credit on such date giving effect to all collections on such
Assigned Obligations as of such date.
(d) "Defaulted Obligation" means an Obligation any part of which has been
determined to be uncollectible in accordance with Xerox` standard credit
policies in effect on the date hereof and as such policies may be changed
hereafter.
(12)
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(e) "Defaulted Reserve Obligation" means any Reserve Obligation which has
become a Defaulted Obligation.
(f) "Defaulted XBS Obligation" means any XBS Obligation which has become a
Defaulted Obligation.
(g) "Obligation" means any amount owed to Xerox for products sold or leased
to the obligor (the "Debtor") by Xerox, including products manufactured by
Xerox or by other parties.
(h) "Reserve" means the reserve account to be established under Section 5
hereof.
(i) "Reserve Obligation" means any Assigned Obligation which is not an XBS
Obligation.
(j) "Subsidiary" means a corporation more than 50% of the voting capital
stock of which is owned, directly or indirectly, by another entity.
(k) "XBS Obligation" means any Assigned Obligation which is designated as
such by Xerox at the time of purchase by Credit.
(l) "Xerox" means Xerox Corporation, a New York corporation, and includes
any of its Subsidiaries which hereafter sells Obligations to Credit hereunder
by reason of which sale such Subsidiary shall be deemed to have become a party
hereto and shall become subject to all of the obligations and have all of the
rights of Xerox hereunder with respect to such Subsidiary`s Assigned
Obligations.
2. Sale and Ownership of Obligations.
(a) Subject to the conditions of Sections 2(c) and 2(d) hereof, effective on
the date hereof and at such other times during the term of this Agreement as
may be mutually agreed upon, Xerox will sell to Credit and Credit will
purchase, as hereinafter provided, all of Xerox` right, title and interest in
and to such Assigned Obligations as shall be described in the particular
document of sale. Each sale and purchase of Assigned Obligations shall be
deemed to include the transfer by Xerox to Credit of all security interests
and all other liens which Xerox may have with respect to the equipment, the
sale or lease of which gave rise to the Assigned Obligation.
(b) Each sale to Credit of Obligations under this Agreement shall be
accomplished by the delivery to and acceptance by Credit of a document in
substantially the form of Exhibit "A-1", in the case of Obligations which will
be Reserve Obligations and Exhibit "A-2", in the case of Obligations which
will be XBS Obligations.
(13)
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(c) Each group of Assigned Obligations which are sold by Xerox to Credit
from time to time shall be representative of the quality of Obligations of the
kind represented in such group then held by Xerox with respect to credit
worthiness of the Debtors and collection experience.
(d) Credit may, at any time and from time to time, elect to have any wholly-
owned Subsidiary of Credit purchase the Assigned Obligations from Xerox and
any such Subsidiary and Credit may, at any time and from time to time,
purchase and sell or otherwise transfer Assigned Obligations one to the other.
In the event that such Subsidiary shall become a holder of Assigned
Obligations, it shall concurrently with such transaction be deemed to have
become a party hereto and shall become subject to all the obligations and have
all of the rights of Credit hereunder. Credit may not sell, transfer or
assign Assigned Obligations to any other person, firm or corporation except
(i) transfers and assignments made prior to the date of this Agreement to
Preferred Receivables Funding Corporation and The First National Bank of
Chicago and (ii) further transfers or assignments made with the prior approval
of Xerox.
(e) Xerox and Credit may from time to time establish a mutually-agreed
target return on equity ("ROE") level for Credit. In recognition of the fact
that Credit's credit rating depends, in part, on maintaining such target ROE,
Xerox may, at its option, at any time and from time to time, transfer to
Credit such additional amounts as are necessary to maintain Credit's ROE at
the targeted level.
3. Documents.
(a) Whenever Obligations are sold to Credit under this Agreement, Xerox
shall make available to Credit at its request, for its inspection and copying,
the following:
(i) Documents, if any, evidencing such Assigned Obligations and any security
therefore and any evidence of filing or recording thereof.
(ii) A listing showing the original amount of the Assigned Obligations and
the amount remaining unpaid thereon if less than the face amount.
(iii) Such other financial information then possessed by Xerox regarding the
Debtor`s financial condition as Credit may from time to time request.
(b) Nothing contained in this Agreement shall require, and Xerox shall in no
event be obligated to give, notice to any Debtor that the related Obligation
has been sold to Credit. So long as Xerox shall be in substantial compliance
with its obligations under Section 10(a), Credit shall give no such notice to
any Debtor without the prior written consent of Xerox.
(14)
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4. Purchase Price. The purchase price at which Credit shall at any time
acquire Assigned Obligations shall be such as the parties shall agree at the
time of the sale of the Assigned Obligations.
5. Reserve Account. Credit shall retain a portion of the purchase price of
any Reserve Obligation otherwise payable to Xerox for the sole purpose of
establishing and maintaining a Reserve account intended to cover Reserve
Obligations which subsequently become Defaulted Obligations. Such Reserve
shall be funded as follows:
(a) On the first date on which payment shall be due Xerox for Reserve
Obligations, Credit shall withhold from Xerox and credit to said Reserve a
portion of the purchase price of the stated amount of such Reserve Obligations
as agreed by the parties.
(b) On each subsequent date on which payment shall be due Xerox for Reserve
Obligations, necessary adjustments shall be made in order to maintain a total
Reserve of the stated amount of all outstanding Reserve Obligations (after
giving effect to all other accounting adjustments on such date) as agreed by
the parties.
(c) As of the last day of each Accounting Period after the first such
period, the amounts of any Defaulted Reserve Obligations shall be charged to
the Reserve and subsequent collections of any such Defaulted Obligations will
be credited to the Reserve. Property repossessed in accordance with Section
10(a)(ii) shall be credited to the Reserve in an amount as agreed to by the
parties not to exceed net realizable value. Upon termination hereof pursuant
to Section 13, Defaulted Reserve Obligations and subsequent collections on
Defaulted Reserve Obligations shall continue to be credited to the Reserve
until all Reserve Obligations have been paid in full or become Defaulted
Reserve Obligations. Thereafter, any credit balance in the Reserve shall be
paid to Xerox or any excess charges shall be paid by Xerox to Credit.
6. XBS Obligations. Notwithstanding any other provision of this Agreement to
the contrary, and as additional consideration for Credit`s agreement to
purchase the XBS Obligations in accordance with the terms and provisions of
this Agreement, Xerox hereby agrees that:
(a) On any date that payments are due to Credit from Xerox as set forth in
Section 10 hereof, Xerox shall pay to Credit the full amount of all sums then
due to Credit with respect to the XBS Obligations whether or not such sums
have been collected by Xerox from the parties obligated to pay such sums; and
(b) In the event that Xerox shall determine during any Accounting Period
that a particular XBS Obligation has become a Defaulted XBS Obligation, Xerox
shall repurchase such Defaulted XBS Obligation from Credit within
(15)
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thirty (30) days after the end of such Accounting Period at a price equal to
the Book Value of such Defaulted XBS Obligation as of the date of repurchase.
Each such repurchase shall be deemed to include the transfer by Credit to
Xerox of all security interests and other liens which Credit acquired at the
time it purchased the original XBS Obligation.
7. Price Adjustments; Indemnification. To the extent that Credit is entitled
to collect less than the face value of any Assigned Obligation as the result
of any price adjustment, rebate or cash discount not contemplated in fixing
the sale price of the Assigned Obligation, or breach of product warranty
adjustment or other offset to which the Debtor(s) thereon may become entitled
in connection with the transaction giving rise to such Assigned Obligation,
Xerox will reimburse Credit in the amount of such difference. Xerox agrees to
hold Credit harmless from any and all liability, claims, losses and damages
caused by breach of product warranties made by Xerox or by other breaches of
contract by Xerox with respect to the products covered by Assigned
Obligations. To the extent that Credit suffers any monetary damage due to the
inaccuracy of any of Xerox` representations in Section 9, Xerox will reimburse
Credit in the amount of any such damage. Xerox also agrees to hold Credit
harmless from any and all liabilities, claims, losses and damages for any
sales, use, personal property or license tax arising out of the use of
ownership of any of the products covered by Assigned Obligations.
8. Settlement. Within thirty (30) days after the end of each Accounting
Period, or at such other interval as may be mutually agreed upon, Xerox will
deliver to Credit a settlement statement in substantially the form of Exhibit
"B-1", with respect to Reserve Obligations and Exhibit "B-2", with respect to
XBS Obligations, showing payments to be made as of the end of such Accounting
Period. The balance due between the parties shall thereupon be settled by
payment in appropriate funds or in such manner as may be agreed between the
parties. All adjustments as provided in Section 7 hereof with respect to any
Accounting Period shall for all purposes hereof be deemed to have been made
immediately prior to the end of such Accounting Period. Each transfer at the
time of the settlement for an Accounting Period covered by a settlement
statement shall for all purposes hereof be deemed to have been made at the end
of such Accounting Period.
9. Representations and Warranties. Xerox hereby represents and warrants to
Credit as follows:
(a) The figures set forth in each document of sale and settlement statement
delivered to Credit hereunder will be true and correct as at the time made;
(b) At the time of sale of Obligations, such Obligations will represent
valid and legally enforceable Obligations of customers in connection with the
sale or lease of products;
(16)
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(c) At the time of sale of Obligations, beneficial ownership in the
Obligations will not have been conveyed or assigned to a third party;
(d) Each document of sale executed and delivered to Credit hereunder will
vest in Credit all right, title and interest in and to the Assigned
Obligations covered by such document and the proceeds of collection thereof,
free and clear from claims of any third parties;
(e) At the time of sale of Obligations, such Obligations will be free and
clear of all liens and encumbrances whatsoever and will not be subject to any
setoff, counterclaim or other defense;
(f) At the time of sale of Obligations, such Obligations will conform with
any and all applicable laws and regulations; and
(g) Xerox will at all times during the warranty period for equipment satisfy
its obligations, if any, with respect to the maintenance and service of
equipment, the sale of which gave rise to an Assigned Obligation.
10. Services.
(a) Credit hereby appoints Xerox to perform the following services for
Credit, and Credit will reimburse Xerox for the cost to Xerox of performing
such services to the extent and in such amounts as may from time to time be
agreed to between Xerox and Credit:
(i) To bill and collect, when due and with the same diligence and
procedures employed in the collection of Xerox` own accounts receivable, sums
payable on Assigned Obligations and upon collection to hold them for the
account of Credit, and to pay them over to Credit within thirty (30) days
after the end of the Accounting Period in which the same were received or
within such other period of time as the parties shall agree;
(ii) If it becomes advisable to Xerox to repossess any property in which
any Reserve Obligation acquired by Credit has any security interest, to
proceed with due diligence to take lawful steps to repossess said property and
to take such other lawful steps as may be necessary or appropriate to enforce
such security interest for and on behalf of Credit, and any such repossessed
property shall become the property of Xerox upon an appropriate credit to the
Reserve in accordance with Section 5(c);
(iii) To perform such other acts and provide such other services as Credit
may from time to time reasonably request and Xerox may agree to perform or
provide.
(17)
<PAGE>
(b) Xerox agrees to indemnify Credit against, and hold Credit harmless from,
any and all claims asserted against Credit by any third party arising out of
any wrongful or negligent act or omission to act of Xerox, in performing any
of the services which Xerox shall perform or furnish for Credit pursuant to
the provisions of this Agreement, provided, however, that Credit shall
promptly notify Xerox in writing of each such claim made or suit thereon
instituted against Credit and the details thereof, and shall not pay or
compromise any such claim or suit without the written approval of Xerox, and
Xerox shall be permitted to assume and direct the defense of any such suit by
counsel of its own choosing.
(c) Nothing contained in this Agreement shall in any way restrict Xerox at
any time from exchanging, renewing, extending or in any way altering the
Assigned Obligations on behalf of and for the account of Credit, provided that
any such exchange, renewal, extension or alteration shall be consonant with
Xerox` then existing standard credit policies. Appropriate adjustment shall
be made for any such change, renewal, extension or alteration in the
settlement statement at the end of the Accounting Period in which the action
took place.
11. Records. Xerox will
(a) safely maintain such documents as may be required for the collection of
Assigned Obligations;
(b) keep such accounts and other records as will enable Credit to determine
at any time the status of the Assigned Obligations;
(c) permit Credit on reasonable notice at any time during normal business
hours to inspect, audit, check and make abstracts from Xerox` accounts,
records, correspondence and other papers pertaining to Assigned Obligations;
and
(d) deliver to Credit, upon its request and at Xerox` own cost and expense,
any of said accounts, records, correspondence and other papers as Credit may
deem reasonably essential to enable it to enforce its rights, if then being
challenged, with respect to Assigned Obligations. The books and records of
Xerox will be made to reflect the sale of the Assigned Obligations to Credit.
12. Waivers. Xerox hereby waives any failure or delay on the part of Credit
in asserting or enforcing any of its rights or in making any claims or demands
hereunder.
13. Termination; Amendment. This Agreement may not be terminated, amended or
modified except upon the written consent thereto of Credit and Xerox which
will not be unreasonably withheld. No Obligations shall be offered or
purchased hereunder after the date of termination. This Agreement shall
otherwise continue in effect after the date of termination until Credit shall
have received
(18)
<PAGE>
payment of an amount equal to the unrecovered balance then remaining to be
paid on all Assigned Obligations owned by Credit on the date of termination
and thereupon this Agreement shall terminate for all purposes (other than
rights of indemnification provided for herein).
14. Notices. Any notice, instruction, request, consent, demand or other
communication required or contemplated by this Agreement to be in writing,
shall be given or made or communicated by United States first class mail,
addressed as follows:
If to Xerox: Xerox Corporation
P. O. Box 1600
800 Long Ridge Road
Stamford, Connecticut 06904-1600
Attention: Treasurer
If to Credit: Xerox Credit Corporation
P. O. Box 10347
100 First Stamford Place
Stamford, Connecticut 06904-2347
Attention: Vice President, Finance
15. Successors. The covenants, representations, warranties and agreements
herein set forth shall be mutually binding upon, and inure to the mutual
benefit of, Xerox and its successors, and Credit and its successors.
16. Governing Law. This Agreement shall be governed by the laws of the State
of New York.
IN WITNESS WHEREOF, the parties hereto have set their hands and have affixed
their corporate seals as of the day and year first above written.
XEROX CORPORATION
Attest: /s/ Martin S. Wagner By /s/ Eunice M. Filter
Assistant Secretary Vice President, Treasurer
And Secretary
XEROX CREDIT CORPORATION
Attest: /s/ Douglas H. Marshall By /s/ George R. Roth
Assistant Secretary Vice President and
Treasurer
Chief Financial Officer
(19)
<PAGE>
EXHIBIT A-1
This instrument is delivered to you pursuant to the Amended and Restated
Operating Agreement dated as of November 1, 1980, amended and restated as of
June 30, 1998, by and between Xerox Corporation and Xerox Credit Corporation
("Credit").
1. The undersigned hereby sells and transfers to ___________, pursuant to
Section 2 of the Agreement, an aggregate of $________ of Reserve Obligations
outstanding as of the close of business on __________ for a purchase price
(less the Reserve) of $________. Such Reserve Obligations are set forth on
Schedule 1 hereto.
2. After giving effect to all adjustments you own as of the close of business
at ______________, Reserve Obligations in the aggregate amount of $________.
3. This instrument shall become effective as of the date hereof upon your
acceptance.
XEROX CORPORATION
By _____________________
[Title]
Accepted as of __________________.
___________________________
By: ____________________
[Title]
(20)
<PAGE>
Schedule 1
To Instrument of Transfer
As of _____________
Pursuant To Amended and Restated Operating Agreement
Dated As Of November 1, 1980, amended and restated as of June 30, 1998
Xerox Corporation is hereby transferring as of __________ to ____________ the
Reserve Obligations set forth on the New Month Contract - Detail Report
bearing the following Division Codes and Customer Types:
(21)
<PAGE>
EXHIBIT A-2
This instrument is delivered to you pursuant to the Amended and Restated
Operating Agreement dated as of November 1, 1980, amended and restated as of
June 30, 1998, by and between Xerox Corporation and Xerox Credit Corporation.
1. The undersigned hereby sells and transfers to ___________, pursuant to
Section 2 of the Agreement, an aggregate of $________ of XBS Obligations
outstanding as of the close of business on __________ for a purchase price of
$________. Such XBS Obligations are set forth on Schedule 1 hereto.
2. After giving effect to all adjustments you own as of the close of business
at ______________, XBS Obligations in the aggregate amount of $________.
3. This instrument shall become effective as of the date hereof upon your
acceptance.
XEROX CORPORATION
By: ______________________
[Title]
Accepted as of _____________.
____________________________
By _________________________
[Title]
(22)
<PAGE>
Schedule 1
To Instrument of Transfer
As of _____________
Pursuant To Amended and Restated Operating Agreement
Dated As Of November 1, 1980, amended and restated as of June 30, 1998
Xerox Corporation is hereby transferring as of __________ to __________ the
following XBS Obligations:
(23)
<PAGE>
EXHIBIT B-1
(Part 1)
SETTLEMENT STATEMENT FOR MONTH OF _____________
Between Xerox Corporation and Xerox Credit Corporation
RESERVE OBLIGATIONS AGREEMENT RESERVE ACCOUNT
1. Reserve Obligations outstanding 7. Balance in Agreement Reserve
at end of prior period (Line at end of prior period
6 of prior report) (Line 14 of prior report)
$_________ ________
2. Amount of Obligations (which 8. Amount credited to Reserve
will be designated as Reserve for the period.
Obligations) as of end of period
(Exhibit A-1) __________ _________
3. Reserve Obligations which became 9. Charge against Reserve
Defaulted Reserve Obligations
during period __________ _________
4. Collections and other adjustments 10. Collections and other
on Reserve Obligations during adjustments on Defaulted
period __________ Reserve Obligations _________
5. Net Change for the period (Line 2 11. Net change in Agreement
minus Lines 3 and 4) Reserve account during period
(Line 9 plus Line 10 minus
__________ Line 9) _________
6. Reserve Obligations at end of 12. Agreement Reserve prior to
period (Line 1 plus Line 5) adjustment (Line 7 plus
__________ Line 11 _________
13. Reserve adjustment _________
14. Balance in Agreement Reserve
at end of period _________
(24)
<PAGE>
EXHIBIT B-1
(Part 2)
SETTLEMENT STATEMENT FOR MONTH OF _____________
Between Xerox Corporation and Xerox Credit Corporation
SETTLEMENT
Due Due
XC XCC
15. Collections and other
adjustment on
Reserve Obligations
(Line 4) XXX ______
16. Collections and other
adjustment on Defaulted
Reserve Obligations
(Line 10) XXX ______
Amount Due XCC XXX ______
17. Agreement Reserve
Balance adjustment
Line 13) XXX ______
18. Amount of Accounts
Receivable (which will be
designated as Reserve
Obligations) assigned less
amount credited to reserve
(Line 2 minus Line 8) _____ XXX
19. Unearned Interest and
Discount / (Premium)
_____ ______
Totals (Line 16 plus
Lines 17 and 18) _____
Amount Due XC _____ XXX
(25)
<PAGE>
EXHIBIT B-2
SETTLEMENT STATEMENT FOR MONTH OF _____________
Between Xerox Corporation and Xerox Credit Corporation
XBS OBLIGATIONS SETTLEMENT
Due XC Due XCC
1. XBS Obligations outstanding 7. Sums due on XBS
at end of prior period Obligations (Line 4)
(Line 6 of Prior Report) $______ XXX _______
2. Amount of Obligations (which 8. Book Value of Defaulted
will be designated as XBS XBS Obligations (Line 3)
Obligations) assigned as of
end of period (Exhibit A) ______ XXX _______
Amount Due XCC XXX _______
(Line 7 plus Line 8)
3. Book Value of XBS Obligations 9. Amount of Accounts Receivable
which became Defaulted XBS (which will be designated as
Obligations during period XBS Obligations) assigned
______ (Line 2) ______ XXX
4. Sums due on XBS Obligations
during period 10. Unearned Interest XXX _______
5. Net change for the period (Line 2
minus Lines 3 and 4) _______ Amount Due XC _______ XXX
(Line 9 minus Line 10)
6. XBS Obligations at end of period
(Line 1 plus Line 5) $_______ Amount Due XC _______ XXX
(26)
<PAGE>
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,
1998 1997 1997 1996 1995 1994 1993
Income before income taxes $ 68 $ 64 $ 123 $ 123 $ 119 $ 147 $ 154
Fixed Charges:
Interest expense (2)
Xerox debt 6 3 3 5 6 5 4
Other debt 111 105 214 199 213 197 205
Total fixed charges 117 108 217 204 219 202 209
Earnings available for
fixed charges $ 185 $ 172 $ 340 $ 327 $ 338 $ 349 $ 363
Ratio of earnings to
fixed charges (1) 1.58 1.59 1.57 1.60 1.54 1.73 1.74
(1) The ratio of earnings to fixed charges has been computed by dividing
total earnings available for fixed charges by total fixed charges.
(2) Debt has been assigned to discontinued operations based on the net assets
of the discontinued operations and the debt-to-equity ratios in accordance
with the Company's guideline. Beginning in 1995, the amount of interest
expense that would have been allocated to discontinued operations was
insignificant and therefore is now being reported within continuing operations
and included in the fixed charges. Discontinued operations consist of the
Company's third party financing and real estate businesses.
(27)
<PAGE>
XEROX CORPORATION Exhibit 12(b)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In Millions)
Six Months Ended
June 30, Year Ended December 31,
1998 1997 1997 1996 1995 1994 1993**
Fixed charges:
Interest expense $ 334 $ 288 $ 617 $ 592 $ 603 $ 520 $ 540
Rental expense 69 60 140 140 142 170 180
Total fixed charges before
capitalized interest and
preferred stock dividends
of subsidiaries 403 348 757 732 745 690 720
Preferred stock dividends
of subsidiaries 27 23 50 - - - -
Capitalized interest - - - - - 2 5
Total fixed charges $ 430 $ 371 $ 807 $ 732 $ 745 $ 692 $ 725
Earnings available for
fixed charges:
Earnings *** $ (628)$ 993 $2,268 $2,067 $1,980 $1,602 $ (193)
Less undistributed income
in minority owned companies (21) (65) (84) (84) (90) (54) (51)
Add fixed charges before
capitalized interest and
preferred stock dividends
of subsidiaries 403 348 757 732 745 690 720
Total earnings available
for fixed charges $ (246)$1,276 $2,941 $2,715 $2,635 $2,238 $ 476
Ratio of earnings to
fixed charges (1)(2) * 3.44 3.64 3.71 3.54 3.23 0.66
(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 and preferred stock dividends of subsidiaries,
by total fixed charges. Fixed charges consist of interest, including capital-
ized interest and preferred stock dividends of subsidiaries, 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 subse-
quent paydowns. Discontinued operations consist of Xerox' Insurance, Other
Financial Services, and Third Party Financing and Real Estate 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.
* Earnings for the six months of 1998 were inadequate to cover fixed
charges. The coverage deficiency was $676 million. Excluding the
restructuring charge, the ratio of earnings to fixed charges would be 3.25.
** 1993 earnings were inadequate to cover fixed charges. The coverage
deficiency was $249 million.
*** Sum of "Income (Loss) before Income Taxes (Benefits), Equity Income and
Minorities' Interests" and "Equity in Net Income of Unconsolidated
Affiliates."
(28)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XEROX
CREDIT CORPORATION'S JUNE 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,557
<ALLOWANCES> 118
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,487
<CURRENT-LIABILITIES> 2,861
<BONDS> 3,862
<COMMON> 23
0
0
<OTHER-SE> 525
<TOTAL-LIABILITY-AND-EQUITY> 4,487
<SALES> 0
<TOTAL-REVENUES> 190
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 68
<INCOME-TAX> 28
<INCOME-CONTINUING> 40
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
