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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
( X ) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended: December 31, 1993
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: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Not Applicable
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 February 28, 1994
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 38 PAGES
(1)
PART I
ITEM 1. Business
Xerox Credit Corporation, a Delaware corporation (together with its
subsidiaries herein called "the Company" unless the context otherwise
requires), was organized on June 23, 1980. All of the Company's outstanding
capital stock is owned by Xerox Financial Services, Inc. (XFSI), a holding
company, which is wholly-owned by Xerox Corporation (Xerox Corporation
together with its subsidiaries are herein called "Xerox" unless the context
otherwise requires).
The Company is engaged in financing long-term accounts receivable
arising out of equipment sales by Xerox to its Document Processing customers
throughout the United States. Contract terms on these accounts receivable
range primarily from two to five years.
The Company discontinued its real-estate development and related real-
estate financing businesses in the first quarter of 1990. In the fourth
quarter of 1990, the Company discontinued its third-party financing and
leasing businesses. See Note 2 to the Consolidated Financial Statements
for further information regarding the Company's discontinued operations.
Xerox is a global company serving the worldwide Document Processing
markets. Xerox' Document Processing activities encompass developing,
manufacturing, marketing, servicing and financing a complete range
of document processing products and services designed to make offices
around the world more productive. These products and systems are
marketed in over 130 countries by a direct sales force and a network of
agents, dealers and distributors. The financing of Xerox equipment is
generally carried out by the Company in the United States and internationally
by several foreign financing subsidiaries.
In December 1993, Xerox announced a worldwide restructuring program
aimed at improving its productivity and significantly lowering its cost base.
The ongoing operations of the Company are unaffected by this decision.
(2)
ITEM 2. Properties
The Company does not directly own any facilities in order to carry on
its principal business. Its principal executive offices in Stamford,
Connecticut comprise approximately 25,000 square feet of office space.
In addition, the Company leases approximately 1,200 square feet of office
space at various domestic and international locations, the majority of
which are used by the Company's discontinued operations. These facilities
are deemed adequate by management.
ITEM 3. Legal Proceedings
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
Not Required.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
This item is inapplicable to Registrant, which is a wholly-owned
subsidiary of Xerox.
ITEM 6. Selected Financial Data
Not Required.
(3)
ITEM 7. 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 by which the Company purchases long-term accounts receivable
associated with Xerox' sold equipment. These receivables arose from Xerox
equipment being sold under installment sales and sales-type leases. In 1993,
the Company purchased receivables from Xerox totaling $1,848 million compared
to $1,964 million in 1992. Earned income from contracts receivable decreased
in 1993 to $376 million from $389 million in 1992. The decreases in earned
income is the result of lower purchases of contracts receivable in 1993
compared to 1992 due to weak United States sales early in 1993 because of
reorganization of the Xerox United States Customer Operations sales force, as
well as lower interest income earned on Xerox contracts receivable resulting
from declining interest rates. Earned income from contracts receivable
increased in 1992 to $389 million from $380 million in 1991. The increase
reflected the growth of Xerox equipment sales financed through the Company
in 1992 compared to 1991. In connection with the contracts receivable
purchased from Xerox, the Company retains an allowance for losses at the time
of purchase, which is intended to protect against future losses. Should
any additional allowances be required, Xerox is required to provide such
funding. The resultant effect is to relieve the Company of any exposure with
regard to write-offs associated with the contracts receivable purchased from
Xerox.
Interest expense was $209 million in 1993 compared to $212 million in
1992, a decrease of $3 million. The 1993 decrease resulted from lower
interest rates partially offset with increased borrowings required to fund the
Companys additional investment in contracts receivable. The $212 million of
interest expense in 1992 was an increase of $12 million from the 1991 interest
expense of $200 million. The 1992 increase in interest expense reflected
increased borrowings required to fund the additional investment in contracts
receivable. 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 $13 million for 1993, a
decrease of $6 million from 1992. The decrease was due primarily to
operating efficiencies associated with the administration of contracts
receivable purchased from Xerox. Operating and administrative expenses
increased to $19 million in 1992 compared to $16 million in 1991. This
increase was due primarily to additional administrative costs associated with
the increase in the volume of Xerox contracts receivable financed in 1992
compared to 1991.
The effective income tax rate for 1993 was 40.9 percent as compared
with 39.9 percent and 40.2 percent for 1992 and 1991, respectively. The
increase in the effective tax rates in 1993 compared to 1992 and 1991 is due
primarily to the 1993 increase in the corporate federal income tax rates from
34 percent to 35 percent retroactive to January 1, 1993.
(4)
Discontinued Operations
Since their discontinuance in 1990, the Company has made substantial
progress in disengaging from the real-estate and third-party financing
businesses. During the three years ended December 31, 1993, the Company
received net cash proceeds of $2,089 million from the sale of discontinued
business units and assets, from several asset securitizations and from run-off
collection activities. The amounts received were consistent with the
Company's estimates in the disposal plan and were primarily used to reduce the
Company's short-term indebtedness. At December 31, 1993, the Company remains
contingently liable for approximately $126 million under recourse provisions
associated with the securitization transactions.
Since a portion of the remaining assets ($120 million) represents
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 significantly slower in 1994 and future years, compared with 1993 and
prior years. The Company believes that the liquidation of
the remaining assets will not result in a net loss.
Additional information regarding discontinued operations is included in
Note 2 to the Consolidated Financial Statements.
(5)
Capital Resources and Liquidity
The Company's principal sources of funds are cash from the collection
of Xerox contracts receivable and borrowings.
At December 31, 1993 the Company and Xerox have joint access to three
revolving credit agreements totaling $3 billion with various banks, which
expire from 1994 to 1998. The interest on amounts borrowed under these
facilities is at rates based, at the borrower's option, on spreads above
certain reference rates such as LIBOR and Federal funds rates.
Net cash used in operating activities was $48 million in 1993
compared with $23 million of cash used in 1992. The 1993 increase in cash
used by operating activities is mainly attributable to the reduction in
accounts payable and accrued liabilities due to timing of payments. Net cash
used in operating activities was $23 million in 1992 compared with $161
million of cash provided by operating activities in 1991. The 1992 decrease
in cash provided by operating activities is mainly attributable to the
reduction in deferred income taxes payable which declined as a result of the
Company's adoption of Statement of Financial Accounting Standards (SFAS) No.
109- "Accounting for Income Taxes" and sales of certain discontinued
operation's assets.
Net cash provided by investing activities was $21 million in 1993
compared to $58 million of cash used in investing activities in 1992. The
increase in cash provided by investing activities was the result of higher net
collections from the Company's investment in contracts receivable in 1993,
which was partially offset by lower net collections from discontinued
operations. Net cash provided by investing activities during 1992
decreased $815 million from $757 million of cash provided by investing
activities during 1991. The decrease resulted from lower net collections
from the sale and run off activity of discontinued assets.
Net cash provided by financing activities was $26 million in 1993
compared to $79 million in 1992. The decrease in cash provided was
the result of increased principal payments on the Company's long-
term debt. Net cash provided by financing activities was $79 million during
1992, compared with $926 million of cash used in financing activities during
1991. The proceeds from the 1991 sales and asset securitizations of the
third-party financing and leasing assets enabled the Company to reduce the
short-term indebtedness of the Company more in 1991 than in 1992, and pay
higher dividends in 1991 than in 1992.
(6)
The Company believes that cash provided by continuing operations, cash
available under its commercial paper program supported by its credit
facilities, and its readily available access to the capital markets are more
than sufficient for its funding needs. During 1994, new borrowing associated
with the financing of customer purchases of Xerox equipment will continue.
The timing, principal amount and form of new short- and long-term financing
will be determined based upon the Company's need for financing and prevailing
debt market conditions.
The Company intends to continue to match its contracts receivable
and indebtedness to maintain the relationship between investment income and
interest expense. To assist in managing its interest rate exposure, the
Company has entered into a number of interest rate swap agreements. In
general, the Company's objective is to hedge its variable-rate debt by paying
fixed rates under the swap agreements while receiving variable-rate based
payments in return. The Company has also entered into swap agreements
that convert both fixed-and non-commercial paper based variable-rate interest
payments into payments that are indexed to commercial paper rates.
During 1993, the Company entered into third-party interest rate swap
agreements, which effectively converted $750 million of variable-rate
debt into fixed-rate debt. These agreements mature at various dates
through 1997 and resulted in a weighted average fixed-rate of 4.52 percent
at December 31,1993. The Company also entered into third-party interest rate
swap agreements, during 1993 which effectively converted $425 million of
variable-rate debt into variable-rate debt that is indexed to the commercial
paper rates. These agreements mature at various dates through 1997.
As of December 31, 1993 the Company's overall debt-to-equity ratio
was 6.5 to 1. The Company declared aggregate dividends of $59 million, $85
million and $230 million during 1993, 1992 and 1991, respectively. The
Company intends to maintain a debt-to-equity ratio of approximately 6.5 to 1
over time.
Pursuant to a Support Agreement between the Company and Xerox,
Xerox has also agreed to retain ownership of 100 percent of the voting capital
stock of the Company and to make periodic payments to the extent necessary
to ensure that the Company's annual pre-tax earnings available for
fixed charges equal at least 1.25 times the Company's fixed charges.
(7)
ITEM 8. Financial Statements and Supplementary Data
The financial statements of the Company and its consolidated
subsidiaries and the notes thereto, the financial statement schedules, and
the report thereon of KPMG Peat Marwick, independent auditors, are set forth
on pages 10 through 30 hereof.
The other financial statements and schedules required herein are filed
as "Financial Statement Schedules" pursuant to Item 14 of this report on Form
10-K.
ITEM 9. Disagreements on Accounting and Financial Disclosure
Not Applicable.
ITEM 10. Directors and Executive Officers of the Registrant
Not Required.
ITEM 11. Executive Compensation
Not Required.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Not Required.
ITEM 13. Certain Relationships and Related Transactions
Not Required.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) and (2) The financial statements and the financial statement
schedules and the report of independent auditors thereon filed
herewith are listed or otherwise included in the attachment
hereto.
(3) The exhibits filed herewith are set forth on the Exhibit
Index included herein.
(b) A Current Report on Form 8-K dated December 8, 1993 reporting
Item 5 "Other Events" was filed during the last quarter of the
period covered by this Report.
(8)
SIGNATURE
Pursuant to the requirements of Section 13 or 15 (d) 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) Sandeep B. Thakore, Vice President and Treasurer
(DATE) March 18, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
(NAME AND TITLE) David Roe, President and Chief Executive
Officer and Director (Principal
Executive Officer)
(NAME AND TITLE) Sandeep B. Thakore, Vice President and
Treasurer (Principal Financial Officer)
(NAME AND TITLE) Paul G. Ryan, Controller (Principal
Accounting Officer)
(NAME AND TITLE) Donald R. Altieri*, Director
(NAME AND TITLE) David R. McLellan*, Director
(NAME AND TITLE) Stuart B. Ross*, Director
*By Power of Attorney
(NAME AND TITLE) Sandeep B. Thakore, Vice President and Treasurer
Attorney-in-Fact
(DATE) March 18, 1994
(9)
SIGNATURE
Report of Independent Auditors
The Board of Directors
Xerox Credit Corporation:
We have audited the consolidated financial statements of Xerox Credit
Corporation and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Xerox
Credit Corporation and subsidiaries at December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and its method of
accounting for postretirement benefits other than pensions in 1992.
KPMG PEAT MARWICK
Stamford, Connecticut
January 31, 1994
(10)
XEROX CREDIT CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements:
Consolidated statements of income for each of the years in the three-year
period ended December 31, 1993
Consolidated balance sheets at December 31, 1993 and 1992
Consolidated statements of shareholder's equity for each of the years in the
three-year period ended December 31, 1993
Consolidated statements of cash flows for each of the years in the three-year
period ended December 31, 1993
Notes to consolidated financial statements
Schedules:
II Amounts receivable from related parties and underwriters, promoters
and employees other than related parties
VIII Valuation and qualifying accounts
IX Short-term borrowings
All other schedules are omitted as they are not applicable or the information
required is included in the consolidated financial statements or notes
thereto.
(11)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1993, 1992 and 1991
(In Millions)
1993 1992 1991
Earned Income:
Contracts receivable $ 376 $ 389 $ 380
Expenses:
Interest 209 212 200
Operating and administrative 13 19 16
Total expenses 222 231 216
Income
before income taxes 154 158 164
Provision for income taxes 63 63 66
Net income $ 91 $ 95 $ 98
See notes to consolidated financial statements.
(12)
XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
(In Millions)
ASSETS
1993 1992
Cash and cash equivalents $ 1 $ 2
Investments:
Contracts receivable 4,148 4,006
Notes receivable - Xerox and affiliates 58 57
Investments in Xerox affiliates, at equity 74 -
Unearned income (437) (520)
Allowance for losses (153) (139)
Total investments 3,690 3,404
Net assets of discontinued operations 357 650
Other assets 2 3
Total assets $4,050 $4,059
LIABILITIES, DEFERRED INCOME TAXES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $1,653 $1,257
Xerox Corporation - 78
Current portion of notes payable after one year 554 709
Notes payable after one year 1,079 1,145
Notes payable after one year-Xerox and affiliates 75 -
Due to Xerox Corporation, net 54 39
Accounts payable and accrued liabilities 74 105
Liabilities of business transferred 17 78
Total liabilities 3,506 3,411
Deferred income taxes 38 174
Shareholder's Equity:
Common stock, no par value, 2,000 shares
authorized, issued, and outstanding 23 23
Additional paid-in capital 145 145
Retained earnings 337 305
Cumulative translation adjustment 1 1
Total shareholder's equity 506 474
Total liabilities, deferred income taxes
and shareholder's equity $4,050 $4,059
See notes to consolidated financial statements.
(13)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Years Ended December 31, 1993, 1992 and 1991
(In Millions)
Additional Cumulative
Common Paid-In Retained Translation
Stock Capital Earnings Adjustment Total
Balance at December 31, 1990 $ 23 $ 138 $ 427 $ 2 $ 590
Net Income 98 98
Dividends (230) (230)
XFSI Capital Contribution 7 7
Translation adjustment (1) (1)
Balance at December 31, 1991 23 145 295 1 464
Net Income 95 95
Dividends* (85) (85)
Balance at December 31, 1992 23 145 305 1 474
Net Income 91 91
Dividends (59) (59)
Balance at December 31, 1993 $ 23 $ 145 $ 337 $ 1 $ 506
* Includes a non-cash dividend of $25 million.
See notes to consolidated financial statements.
(14)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
(In Millions)
1993 1992 1991
Cash Flows from Operating Activities
Net income $ 91 $ 95 $ 98
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Amortization of discount on long-term debt - 2 32
(Decrease) increase in deferred
income taxes (136) (149) 21
Other, net (3) 29 10
Net cash (used in) provided by operating activities (48) (23) 161
Cash Flows from Investing Activities
Purchases of investments (1,848) (1,964) (1,784)
Proceeds from investments 1,637 1,426 1,164
Net collections from
discontinued operations 232 480 1,377
Net cash provided by (used in) investing activities 21 (58) 757
Cash Flows from Financing Activities
Increase in short-term debt, net 305 382 269
Proceeds from long-term debt 475 406 216
Principal payments of long-term debt (695) (649) (1,188)
Dividends (59) (60) (230)
Capital contribution - - 7
Net cash provided by (used in) financing activities 26 79 (926)
Decrease in cash and cash equivalents (1) (2) (8)
Cash and cash equivalents, beginning of year 2 4 12
Cash and cash equivalents, end of year $ 1 $ 2 $ 4
See notes to consolidated financial statements.
(15)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of Xerox
Credit Corporation (the Company) and its subsidiaries. The Company is a
wholly-owned subsidiary of Xerox Financial Services, Inc. (XFSI), which is in
turn wholly-owned by Xerox Corporation (Xerox). All significant transactions
between the Company and its subsidiaries have been eliminated.
Recognition of Earned Income
The Company utilizes the finance method for the recognition of earned
income associated with contracts receivable. Under this method, the
difference between the amount of gross contract receivable and the cost of
the contract is recorded as unearned income. The unearned income is
amortized to income over the term of the transaction under an effective yield
method.
Cash and Cash Equivalents
All highly liquid investments of the Company, with a maturity of three
months or less at date of purchase, are considered to be cash equivalents.
Allowance for Losses
In connection with the contracts receivable purchased from Xerox, the
Company retains an allowance for losses at the time of purchase which is
intended to protect against future losses. Should any additional allowances
be required, Xerox is required to provide such funding. The resultant effect
is to relieve the Company of any exposure with regard to write-offs
associated with the contracts receivable purchased from Xerox.
(16)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Charge Off of Delinquent Receivables
The Company's policy with respect to the charge-off of delinquent
receivables to the reserve is that such receivables are to be charged off as
soon as it becomes apparent that the collection of the receivables through
normal means is unlikely. The policy contemplates that delinquent receivables
will be charged off before the aging of such delinquent receivables
reaches 180 days.
New Accounting Pronouncements
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 109- "Accounting for Income Taxes." The
effect of adopting SFAS No. 109 has no impact on income and shareholder's
equity for continuing operations in 1992. A tax benefit of $87 million was
recorded to discontinued operations and represents the cumulative tax benefits
associated with the discontinued real-estate operations that were not
previously recorded.
Also, effective January 1, 1992, the Company adopted SFAS No. 106-
"Employees' Accounting for Postretirement Benefits other than Pensions," which
changes the method of recording other postretirement benefit costs from a cash
basis to the accrual basis. The cumulative effect of adopting SFAS No. 106 on
the Company was immaterial.
In November 1992, the Financial Accounting Standards Board issued SFAS
No. 112- "Employers' Accounting for Postemployment Benefits." SFAS No. 112
requires accrual accounting for employee benefits that are paid after the
termination of active employment but prior to retirement. The Company is
required to adopt SFAS No. 112 beginning in 1994. the adoption of SFAS No.
112 is not expected to have a significant impact on the Company since the
applicable benefits are either routinely accrued or are types of benefits
not currently offered by the Company.
(17)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Discontinued Operations
The Company has made substantial progress in disengaging from the
real-estate and third-party financing businesses that were discontinued in
1990. During the three years ended December 31, 1993, the Company
received aggregate net cash proceeds of $2,089 million ($232 million in 1993,
$480 million in 1992 and $1,377 million in 1991) from the sale of individual
assets or of business units, from several asset securitizations and from
run-off collection activities. The amounts received were consistent with
the Company's estimates in the disposal plan and were used primarily to repay
short-term indebtedness. At December 31, 1993, the Company remains
contingently liable for $126 million under recourse provisions associated with
the securitization transactions.
In addition, the Company has issued certain guarantees with respect to
obligations and debt of one operation sold, Highline Financial Services, Inc.
As a result of the guarantees, liabilities in the amount of $17 million are
included in the Company's balance sheet at December 31, 1993, under the
caption "Liabilities of business transferred." Because the Company has full
recourse to the underlying assets associated with the guarantees, $17 million
of assets remain on the Company's December 31, 1993 balance sheet, under the
caption "Net assets of discontinued operations." These liabilities and
assets will decrease proportionately with the collection of the underlying
receivables, which have a remaining life of approximately 12 months.
During 1991 and 1992, incremental tax benefits of $22 million and $122
million, respectively, were realized by the Company related to the writeoff of
its real estate businesses in 1990. Rather than recording these tax
benefits in net income, the Company increased before-tax reserves related
to the discontinued businesses. Management believed this prudent in
view of weak market conditions and continuing uncertainties in the domestic
real-estate and credit markets.
Approximately $120 million (34 percent) of the remaining assets
represent passive lease receivables, many with long-duration contractual
maturities and unique tax attributes. Accordingly, the Company expects that
the wind-down of the portfolio will be slower during 1994 and in future years,
compared with prior years. The Company believes that the liquidation of the
remaining assets will not result in a net loss.
Short-and long-term debt represents debt included in the Company's
consolidated balance sheets that has been assigned to the discontinued
businesses in accordance with historical methodologies. Proceeds from
disposition of these businesses, along with their results of operations
during the phase-out period, are expected to be used to repay such
consolidated indebtedness.
(18)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized information of discontinued operations for the three
years ended December 31, 1993 follows:
1993 1992 1991
(In Millions)
Summary of Operations
Loss before income taxes $ - $ (122) $ (22)
Income tax benefit - 122 * 22
Net income (loss) from $ - $ - $ -
discontinued operations
Balance Sheet Data
Gross finance receivables $ 202 $ 515 $ 1,014
Unearned income (53) (87) (134)
Other assets 208 222 359
Investment in discontinued operations, net $ 357 $ 650 $ 1,239
Allocated short- and long-term debt $ 244 $ 400 $ 709
* Includes $87 million resulting from the cumulative effect of adopting
statement of Financial Accounting Standards No. 109- "Accounting for Income
Taxes," effective January 1, 1992.
Contractual maturities of the gross finance receivables at December 31,
1993 follow (in millions): 1994-$60; 1995-$17; 1996-$20; 1997-$25;
1998; $13; 1999 and thereafter-$67.
(19)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Investments
Contracts receivable represent purchases of long-term trade accounts
receivable from Xerox. These receivables arose from Xerox equipment being
sold under installment sales and sales-type leases. Contract terms on
these receivables range primarily from two to five years and are generally
collateralized by a security interest in the underlying assets. The Company
purchased receivables from Xerox totaling $1,848 million in 1993, $1,964
million in 1992, and $1,784 million in 1991. The Company was charged $11
million in 1993, $10 million in 1992, and $9 million in 1991 by Xerox for
administrative costs associated with the contracts receivable purchased from
Xerox.
Under SFAS No. 107- "Disclosures about Fair Values of Financial
Instruments," the Company is not required to determine the fair value of
these receivables. Management believes that any revaluation of the
contracts receivable would result in a fair value significantly in excess
of the carrying value of these receivables.
During 1990, the Company sold, with limited recourse, $750 million
of Xerox contracts receivable in two asset securitizations. At
December 31, 1993, $40 million of these receivables remain outstanding.
For the securitization transactions, the Company or one of its subsidiaries
acts as collection agent for the accounts and remits the principal collected
plus a floating rate of interest to the purchasers on a monthly basis.
The scheduled maturities of contracts receivable at December 31,
1993 are as follows (in millions): 1994-$1,663; 1995-$1,205; 1996-$781;
1997-$365; 1998-$127; 1999 and thereafter- $7. Experience has shown that a
portion of these contracts receivable will be prepaid prior to maturity.
Accordingly, the preceding schedule of contractual maturities should not
be considered a forecast of future cash collections.
Included in notes receivable from Xerox and affiliates are receivables
from related parties payable on demand at various interest rates. For
additional information relating to these amounts, see Schedule II- Amounts
Receivable from Related Parties and Underwriters, Promoters and Employees
Other than Related Parties.
In September 1993, the Company acquired 873,550 shares of common stock
of Xerox Financial Services Life Insurance Company ("XFSLIC"), a subsidiary of
XFSI, representing approximately 26 percent of total common stock outstanding,
from a Xerox affiliate. In connection with the purchase of the XFSLIC common
stock, the Company issued a $75 million adjustable rate promissory note due
1998, with an initial interest rate of 6 percent. The XFSLIC investment is
accounted for on the equity method and is recorded at Xerox' historical cost
because all parties involved are part of the Xerox group. Xerox intends to
dispose of its investment in XFSLIC and the Company is expected to receive
book value upon ultimate disposition of this investment.
(20)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Lines of Credit, Interest Rate Swaps and Notes Payable-
Xerox Corporation
At December 31, 1993 the Company and Xerox had joint access to three
revolving credit agreements totaling $3.0 billion with groups of banks, which
expire from 1994 to 1998. These agreements are unused and are available to
back the issuance of commercial paper. At December 31, 1993, Xerox' domestic
operations had borrowed approximately $2.4 billion of commercial paper backed
by these agreements of which approximately $1.7 billion is related to the
Company.
The Company routinely enters into interest rate swap agreements
in the management of interest rate exposure. An interest rate swap is
an agreement to exchange interest rate payment streams based on a
notional principal amount. In general, the Company's objective is
to hedge its variable-rate debt by paying fixed rates under the swap
agreements and receiving variable-rate payments in return. These swap
agreements effectively convert an amount (equal to the notional amount)
of underlying variable-rate debt into fixed-rate debt. The net interest
rate differentials that will be paid or received are recorded currently
as adjustments to interest expense. The counterparties to these swap
agreements are typically major commercial banks.
At December 31, 1993 and 1992, there were outstanding swap agreements
which effectively converted $2,200 million and $1,850 million, respectively,
of short- and long-term variable-rate debt into fixed-rate debt. These swap
agreements mature at various dates through 1999 and result in weighted-
average fixed rates of 5.39 percent and 6.17 percent at December 31, 1993 and
1992, respectively. During 1993, the Company also entered into interest rate
swap agreements which effectively converted $425 million of short- and long-
term variable-rate debt into variable-rate debt that is indexed to the
commercial paper rates. These agreements mature at various dates through
1997. In addition, at December 31, 1993 and 1992, the Company had an
agreement which effectively converted $100 million of fixed-rate debt,
with a weighted average fixed-rate of 8.97 percent, into variable-rate debt
that is indexed to the commercial paper rates.
At December 31, 1993, the Company's swap agreements had an aggregate
net fair value of $35 million, based on quotes from banks, which represents
the estimated net amount the Company would be required to pay to terminate all
the agreements as of December 31, 1993. The Company has no present plans to
terminate any of these agreements prior to their scheduled maturities.
Because the $35 million represents a theoretical liability of the Company,
there was no significant credit risk in the event of a counterparty default.
Notes payable- Xerox Corporation is an intercompany payable with Xerox
relating to the purchase of long-term trade accounts receivables. These
amounts are settled periodically throughout the year.
(21)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Notes Payable After One Year
A summary of notes payable at December 31, 1993 and 1992 follows:
1993 1992
(In Millions)
8.75% Notes due 1993 $ - $ 200
8.20% Notes due 1993 - 20
10.00% Notes due 1993 - 125
9.25% Notes due 1993 - 200
9.125% Notes due 1993 - 100
9.58% Notes due 1993 - 14
9.50% Notes due 1994 100 100
9.76% Notes due 1994 14 14
4.119% Notes due 1994 50 50
Floating Rate Notes due 1994 (a) 275 -
5.375% Notes due 1995 150 150
3.75 % Notes due 1995 50 -
Floating Rate Notes due 1995 (a) 50 -
8.75% Notes due 1995 150 150
6.25% Notes due 1996 200 200
Floating rate Notes due 1996 (a) 50 -
4.80% Notes due 1997 50 -
8.00% Notes due 1999 (b) 100 100
10.00% Notes due 1999 150 150
10.125% Notes due 1999 (c) 150 150
Floating Rate Notes due 2048 (d) 61 62
Other Notes due 1993 - 50
Other Notes due 1994 - 1997 34 21
Subtotal $ 1,634 $ 1,856
Less unamortized discount (1) (2)
Less current portion of notes payable
after one year (554) (709)
Total Notes Payable After one Year $ 1,079 $ 1,145
(a) The notes carry interest rates which are based primarily on spreads
above certain reference rates such as U.S. Treasury Bill, LIBOR and
Federal funds rates.
(b) The notes are redeemable on or after March 1, 1994, at the option of
the Company, in whole or in part, at a premium plus accrued interest.
(c) The notes are redeemable on or after April 15, 1996, at the option of
the Company, in whole or in part, at their principal amount plus accrued
interest.
(22)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(d) The notes mature August 15, 2048 and are repayable at the option of
the noteholders beginning August 15, 1991 and annually thereafter.
On August 15, 1993 and 1991, $1 million and $2 million of these notes
were repaid, respectively. The outstanding notes are classified as notes
payable after one year, since the Company has the ability to refinance
them on a long-term basis, if required. The interest rate is indexed to
rates on commercial paper placed for issuers whose commercial paper
rating is "AA" or the equivalent as reported in Federal Reserve
Statistical Release H.15 (519), which at year-end was 3.34 percent.
Principal payments on notes payable for the next five years are:
$554 million in 1994; $400 million in 1995; $415 million in 1996;
$54 million in 1997; $0 million in 1998; and $211 million thereafter.
Certain of the Company's debt agreements allow it to redeem outstanding
debt, usually at par, prior to scheduled maturity. Outstanding debt issues
with these call features are classified on the balance sheet and in the
preceding five-year maturity table in accordance with management's current
expectations. The actual decision as to early redemption will be made at
the time the early redemption option becomes exercisable and will be based
on economic and business conditions then in existence.
Interest payments on notes payable for 1993, 1992 and 1991 were
$148 million, $166 million, and $237 million, respectively. Interest payments
on commercial paper for 1993, 1992 and 1991 were $48 million, $40 million
and $55 million, respectively. The weighted-average commercial paper interest
rates for 1993, 1992 and 1991 were 3.3 percent, 3.9 percent and 6.1 percent,
respectively.
At December 31, 1993, $1,634 million of notes payable remains out-
standing, substantially all of which are subject to the requirements of SFAS
No. 107- "Disclosures about Fair Values of Financial Instruments." The fair
value of the Company's notes payable at December 31, 1993 was $1,698 million,
which was estimated based on quoted market prices for these or similar issues
or on the current rates offered to the Company for debt of the same remaining
maturities. The difference between the fair value and the carrying value
represents the theoretical net premium the Company would have to pay to
retire all notes payable at December 31, 1993. The Company has no plans to
retire its notes payable after one year prior to their call or final
maturity dates.
The original issue discount and other expenses associated with the debt
offerings are amortized over the term of the related issue.
(23)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Income Taxes
"SFAS No. 109 requires a change from the deferred method of accounting
for income taxes of APB Opinion 11 (APB No. 11) to the asset and liability
method of accounting for income taxes. Under the asset and liability method
of SFAS No. 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates that apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under SFAS
No. 109 the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Effective January 1, 1992, the Company prospectively adopted SFAS No.
109. The cumulative effect of that change was immaterial and had no impact
on income from continuing operations. A tax benefit of $87 million was
recorded in 1992 to discontinued operations, which represented the cumulative
tax benefits associated with the discontinued real-estate operations that were
not previously recorded.
Pursuant to the deferred method under APB No. 11, which was applied in
1991 and prior years, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable to the year of
the calculation. Under APB No. 11, deferred taxes were not adjusted
for subsequent changes in tax rates.
Income taxes are provided at statutory rates based on income before
income taxes exclusive of the amortization of investment tax credits and
earnings not subject to Federal taxation. Substantially all of the Company's
operations are included in Xerox' consolidated income tax returns. In
connection with these consolidated returns, the Company paid Xerox $136
million, $15 million, and $41 million in 1993, 1992 and 1991, respectively.
The Company paid $1 million in 1993, 1992 and 1991, to taxing authorities
for Company operations not included in Xerox' consolidated tax returns.
(24)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of income from continuing operations before taxes and
the provision for income taxes are as follows:
1993 1992 1991
(In Millions)
Income from continuing operations
before income taxes: $ 154 $ 158 $ 164
Federal income taxes
Current $ 50 $ 52 $ 57
Deferred (1) (3) (7)
State income taxes
Current 14 15 18
Deferred - (1) (2)
Total provision for income taxes $ 63 $ 63 $ 66
Deferred income taxes for 1993, 1992, and 1991 result from differences
between financial and tax reporting in the timing of the recognition of income
on securitized assets. In addition, deferred income taxes for 1991 included
differences due to the timing of interest expense recognized on the Company's
$250 million Zero Coupon Notes which were redeemed during 1992.
A reconciliation of the effective tax rate from the U.S. Federal
statutory tax rate follows:
1993 1992 1991
U.S. Federal statutory rate 35.0% 34.0% 34.0%
Tax exempt interest income - - (0.4)
State income taxes, net of Federal
income tax benefit 5.9 5.9 6.6
Effective tax rate 40.9% 39.9% 40.2%
(25)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences that give rise to significant
portions of deferred taxes at December 31, 1993 follows:
1993 1992
Tax effect of future tax deductions:
Discontinued real-estate
tax benefit $ 42 $ 47
Tax effect on future taxable income:
Discontinued leverage leases and other (77) (219)
Continuing operations- asset securitizations (3) (2)
Total deferred taxes, net $ (38) $(174)
Total net deferred tax liabilities included in the Company's balance
sheets at December 31, 1991 was $323 million. The 1993 reduction in deferred
income taxes payable is the result of sales of certain discontinued
operations assets. The Company believes that it is more likely than not
that the deferred tax assets will be realized in the ordinary course of
operations based on scheduling of deferred tax liabilities and income from
operating activities.
(7) Xerox Corporation Support Agreement
The terms of a Support Agreement with Xerox provide that the Company
will receive 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.
(26)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) Quarterly Results of Operations (Unaudited)
A summary of interim financial information follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(In Millions)
1993
Earned income $ 102 $ 93 $ 87 $ 94 $ 376
Interest expense 56 53 52 48 209
Operating and administrative
expenses 4 2 4 3 13
Income taxes 17 15 13 18 63
77 70 69 69 285
Net income $ 25 $ 23 $ 18 $ 25 $ 91
1992
Earned income $ 99 $ 98 $ 96 $ 96 $ 389
Interest expense 54 52 53 53 212
Operating and administrative
expenses 5 4 5 5 19
Income taxes 16 17 15 15 63
75 73 73 73 294
Net income from
continuing operations 24 25 23 23 95
Income (loss) from
discontinued operations* 122 - - (122) -
Net income (loss) $ 146 $ 25 $ 23 $ (99) $ 95
* 1992 first quarter includes $87 million benefit resulting from the
cumulative effect of adopting SFAS No. 109.
(27)
SCHEDULE II
XEROX CREDIT CORPORATION
Amounts Receivable from Related Parties and Underwriters,
Promoters and Employees Other than Related Parties
Years Ended December 31, 1993, 1992 and 1991
(In Millions)
Balance at
Balance End of Period
Beginning Amounts
of Period Additions Collected Current Not Current
Name of Debtor
1993
Xerox Financial Services,
Inc. (A) $ 50 $ 3 $ 3 $ 50 $ -
Xerox Financial Services,
Inc. - 6 - 6 -
CBC Funding
Corporation 7 - 5 2 -
$ 57 $ 9 $ 8 $ 58 $ -
1992
Van Kampen Merritt,
Inc. (A) $ 50 $ 3 $ 3 $ 50 $ -
CBC Funding
Corporation 26 - 19 7 -
$ 76 $ 3 $ 22 $ 57 $ -
1991
Van Kampen Merritt,
Inc. (A) $ 51 $ 3 $ 4 $ 50 $ -
CBC Funding
Corporation - 33 7 - 26
Crum and Forster, Inc. 6 6 12 - -
Xerox Finance N.V. 9 - 9 - -
$ 66 $ 42 $ 32 $ 50 $ 26
(A) During February 1993, this note was assumed by XFSI. The note bears
interest at the commercial paper rate plus 1.0 percent annually.
(28)
SCHEDULE VIII
XEROX CREDIT CORPORATION
Valuation and Qualifying Accounts
Years Ended December 31, 1993, 1992 and 1991
(In Millions)
Additions
Balance Charged Retained Balance
at to at at
Beginning Costs Time End
of and of of
Period Expenses Purchase Deductions Period
(A) (B)
1993
Allowance for losses-
continuing operations $ 139 $ - $ 63 $ 49 $ 153
1992
Allowance for losses-
continuing operations $ 108 $ - $ 75 $ 44 $ 139
1991
Allowance for losses-
continuing operations $ 127 $ - $ 36 $ 55 $ 108
(A) In connection with the contracts receivable purchased from Xerox,
the Company retains an allowance for losses at the time of purchase
which is intended to protect against future losses. Should any
additional allowances be required, Xerox is required under the
Operating Agreement to provide such funding. For the period
covered by this Schedule, no additional funding was required or
provided.
(B) Amounts written off, net of recoveries.
(29)
SCHEDULE IX
XEROX CREDIT CORPORATION
Short-Term Borrowings
Years Ended December 31, 1993, 1992 and 1991
(In Millions)
Maximum
Weighted Amount Weighted
Balance Average Outstanding Average
At End Interest At Any Average Interest
Of Period Rate Month-End Balance Rate
(A) (B)
1993
Commercial Paper $ 1,653 3.3% $ 1,653 $ 1,478 3.3%
1992
Commercial Paper $ 1,257 3.8% $ 1,283 $ 1,026 3.9%
1991
Commercial Paper $ 906 4.9% $ 1,246 $ 898 6.1%
(A) Average Commercial Paper outstanding during the period is computed
by dividing the daily outstanding balances by the number of days
commercial paper was outstanding.
(B) The weighted average interest rate during the period is computed
by dividing the interest charged for the period by the weighted
average amount outstanding during the period.
(30)
XEROX CREDIT CORPORATION
Form 10-K
For the Year Ended December 31, 1993
Index of Exhibits
Document
(3) (a) Certificate 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 July 15, 1991.
Incorporated by reference to Exhibit 3(b) to Registrants Quarterly
Report on Form 10-Q for the quarter ended June 30, 1991.
(4) (a) Indenture dated as of February 1, 1987 between Registrant and
Continental Illinois National Bank and Trust Company of Chicago
relating to unlimited amounts of debt securities which may be
issued from time to time by Registrant when and as authorized by
Registrant's Board of Directors or the Executive Committee of
the Board of Directors.
Incorporated by reference to Exhibit 4(a) to Registration
Statement No. 33-12160.
(b) Indenture dated as of October 1, 1987 between Registrant and
The Bank of New York relating to unlimited amounts of debt
securities which may be issued from time to time by Registrant
when and as authorized by Registrant's Board of Directors
or the Executive Committee of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to Registration
Statement No. 33-18258.
(c) Indenture dated as of March 1, 1988 between Registrant and
The First National Bank of Chicago relating to unlimited amounts
of debt securities which may be issued from time to time by
Registrant when and as authorized by Registrant's Board of
Directors or the Executive Committee of the Board of Directors,
as supplemented by the First Supplemental Indenture dated as of
July 1, 1988.
Incorporated by reference to Exhibit 4(a) to Registration
Statement No. 33-20640 and to Exhibit 4(a)(2) to Registrant's
Current Report on Form 8-K dated July 13, 1988.
(31)
XEROX CREDIT CORPORATION
Form 10-K
For the Year Ended December 31, 1993
Index of Exhibits
Document
(d) Indenture dated as of March 1, 1989 between Registrant and
Citibank, N.A. relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and as
authorized by Registrant's Board of Directors or the
Executive Committee of the Board of Directors, as supplemented by
the First Supplemental Indenture dated as of October 1, 1989.
Incorporated by reference to Exhibit 4(a) to Registration
Statement No. 33-27525 and to Exhibit 4(a)(2) to Registration
Statement No. 33-31367.
(e) Indenture dated as of October 1, 1989 between Registrant and
Chemical Bank (as successor by merger to Manufacturers Hanover
Trust Company) relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and as
authorized by Registrant's Board of Directors or the Executive
Committee of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to Registration
Statement No. 33-31366.
(f) Indenture dated as of August 1, 1991, as supplemented by the First
Supplemental Indenture dated as of December 31, 1991, between the
Registrant and Bank of Montreal Trust Company relating to
unlimited amounts of debt securities which may be issued from time
to time by Registrant when and as authorized by the Registrant's
Board of Directors or the Executive Committee of the Board of
Directors.
Incorporated by reference to Exhibit 4(a) to Registration
Statement No. 33-39838.
(g) Indenture dated as of October 1, 1991 between Registrant and
Citibank, N.A. relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and as
authorized by the Registrant's Board of Directors or the
Executive Committee of the Board of Directors, as supplemented
by the First Supplemental Indenture dated as of May 1, 1992.
Incorporated by reference to Exhibit 4(a)(1) and 4(a)(2) to
Registration Statement No. 33-43470.
(32)
XEROX CREDIT CORPORATION
Form 10-K
For the Year Ended December 31, 1993
Index of Exhibits
Document
(h) Instruments with respect to long-term debt where the total amount
of securities authorized thereunder does not exceed ten percent
of the total assets of Registrant and its subsidiaries on a
consolidated basis have not been filed. Registrant agrees to
furnish the Commission a copy of each such instrument upon request.
(10) (a) Amended and Restated Operating Agreement originally made and
entered into as of November 1, 1980, amended and restated as of
December 31, 1992 between Registrant and Xerox Corporation
("Xerox").
Incorporated by reference to Exhibit 10(a) of Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992.
(b) Support Agreement dated as of November 1, 1980 between
Registrant and Xerox.
Incorporated by reference to Exhibit 10(b) to Registration
Statement No. 2-71503.
(c) Tax Allocation Agreement dated as of January 1, 1981 between
Registrant and Xerox.
Incorporated by reference to Exhibit 10(c) to Registration
Statement No. 2-71503.
(12) (a) Computation of Registrant's Ratio of Earnings to Fixed Charges.
See Page 34 of this Report on Form 10-K.
(b) Computation of Xerox' Ratio of Earnings to Fixed Charges.
See Page 35 of this Report on Form 10-K.
(23) Consent of KPMG Peat Marwick.
See Page 37 of this Report on Form 10-K.
(24) Power of Attorney.
See Page 38 of this Report on Form 10-K.
(33)