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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, 1995
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from : to
Commission file number: 1-8133
XEROX CREDIT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 06-1024525
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 First Stamford Place, Stamford, Connecticut 06904
(Address of principal executive offices) (Zip Code)
(203) 325-6600
(Registrant's telephone number, including area code)
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 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 29, 1996
Common Stock 2,000
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS J(1)(a)
AND (b) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
THIS DOCUMENT CONSISTS OF 31 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 purchases from Xerox all receivables due from commercial
customers and the Federal Government. New contracts are purchased monthly.
The Company pays Xerox an administration fee for providing billing and
collection services. The purchase price of the contract is calculated as the
present value of the future cash flows. The interest rates utilized to
discount the cash flows are determined by certain referenced interest rates
plus a prescribed spread. The interest rate utilized for the cost calculation
is adjusted monthly as each new set of contracts is purchased.
In 1990 the Company discontinued its real-estate development and related
real-estate financing businesses and 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 The Document Company and a leader in the global document
market, providing document services that enhance productivity. 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. Xerox
document processing products are principally sold directly to users by Xerox'
worldwide sales force of approximately 12,000 employees. Xerox also markets
through a network of independent agents, dealers, distributors and value-added
resellers and has arrangements with U.S. retail marketing channels to market
low-end products not generally suited for distribution through the Xerox
direct sales force. The financing of Xerox equipment is generally carried out
by the Company in the United States and internationally by several foreign
financing subsidiaries and divisions in most countries that Xerox operates.
(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 are located in approximately 19,000 square feet of office space
leased by Xerox and shared by Xerox, XFSI and the Company. The Company uses
less than 1,000 square feet of the total office space. In addition, the
Company leases approximately 1,200 square feet of office space at various
domestic 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
Because the Company is a wholly-owned subsidiary, there is no market for
its common shares. Dividends declared during the five years ended December 31
were as follows
(in millions): 1991 - $230; 1992 - $85; 1993 - $59; 1994 - $88; 1995 - $149.
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 pursuant to which the Company purchases long-term accounts
receivable associated with Xerox' sold equipment. These receivables arise
primarily from Xerox equipment being sold under installment sales and sales-
type leases. In 1995, the Company purchased receivables from Xerox totaling
$1,354 million compared to $1,563 million in 1994. The reduction of
receivables purchases was due to lower United States sales in 1995 principally
due to a realignment of the Xerox United States Customer Operations sales
force. Earned income from contracts receivable decreased in 1995 to $352
million from $362 million in 1994. The decrease in earned income was the
result of a reduction in the size of the portfolios of contracts receivable
purchased from Xerox and a reduction in the interest rate spread on the
contracts being purchased. Earned income from contracts receivable decreased
in 1994 to $362 million from $376 million in 1993. The 1994 decrease was due
to lower interest earned on Xerox' contracts receivable which reflected the
fact that a significant number of those contracts were activated in 1993 and
1992 when market interest rates were at a ten-year low.
Interest expense was $219 million in 1995 compared to $202 million in
1994, an increase of $17 million. The 1995 increase is principally
attributable to the assignment to continuing operations, beginning in 1995, of
interest expense previously assigned to discontinued operations and higher
interest expense resulting from the timing of settlements of intercompany
liabilities. Assigned discontinued operations debt represents consolidated
debt of the Company, which is expected to be paid with the liquidation of the
remaining asset portfolio of the discontinued operations. The $202 million of
interest expense in 1994 was a decrease of $7 million from the 1993 interest
expense of $209 million. The 1994 decrease resulted from lower overall
interest rates partially offset by increased borrowings required to fund the
Company's additional investment in contracts receivable.
Since substantially all of the Company's contracts receivable earn fixed
rates of interest, the Company "match funds" the contracts by swapping
variable-rate commercial paper and medium term notes into fixed rates of
interest for specified maturities. This practice is employed because it
effectively "locks in" a spread and eliminates the risk of shrinking interest
margins in a rising interest rate environment. Conversely, this practice
effectively eliminates the opportunity to increase margins when interest rates
are declining. The Company intends to continue to match its contracts
receivable and indebtedness to ensure an adequate spread between interest
income and interest expense.
Operating and administrative expenses increased to $14 million in 1995
compared to $13 million in both 1994 and 1993. These expenses are primarily
the costs to administer the contracts receivable purchased from Xerox.
The effective income tax rate for 1995 was 40.3 percent as compared
with 40.8 percent and 40.9 percent for 1994 and 1993, respectively.
(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. Through December 31, 1995, the Company received net cash proceeds
of $2,445 million from the sale of discontinued business units, asset
securitizations, sales, and runoff collection activities. The amounts
received have been consistent with the Company's estimates in its disposal
plan and were primarily used to reduce the Company's short-term indebtedness.
During 1995, the Company reduced its net assets of discontinued
operations by approximately $106 million, primarily through the disposal of
the Company's $74 million investment in Xerox Financial Services Life
Insurance Company (XFSLIC) and through contractual maturities.
Since approximately $58 million of the remaining asset portfolio
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 slower in future 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.
Net cash provided by operating activities was $17 million in 1995
compared with $20 million in 1994 and $48 million of cash used in 1993. The
significant usage of cash in 1993 resulted from the liquidation of the asset
portfolio of the discontinued operations which resulted in accelerated
payments of deferred tax liabilities.
Net cash provided by investing activities was $210 million in 1995
compared to $47 million in 1994. The increase in cash provided by investing
activities is principally the result of fewer purchased contracts receivable
in 1995. Net cash provided by investing activities was $47 million in 1994
compared to $21 million provided in 1993. The increase in cash provided by
investing activities was the result of higher net collections from the
Company's investment in contracts receivable in 1994, which was partially
offset by lower collections from discontinued operations.
Net cash used in financing activities was $227 million in 1995 compared
to $68 million in 1994. This change is largely due to lower borrowing
proceeds due to a reduced level of investments in Xerox' contracts receivable.
Net cash used in financing activities was $68 million in 1994 compared to $26
million provided in 1993. The increase in cash used was the result of reduced
borrowing despite payment of higher dividends in 1994.
Cash dividends paid during the three years ended December 31 were as
follows (in millions): 1993 -$59; 1994 - $88; and 1995 - $75. In addition,
there was a non-cash dividend in 1995 of $74 million.
At December 31, 1995, the Company had domestic shelf capacity of $1
billion. In addition, a $1 billion Euro-debt facility is available to both
Xerox and the Company of which $547 million remained unused at December 31,
1995. In 1996, Xerox and the Company intend to increase the size of the Euro
facility by $1 billion to further enhance capital markets flexibility.
At December 31, 1995, the Company and Xerox have joint access to a $5
billion revolving credit agreement with various banks, which expires in 2000.
Any amounts borrowed under this facility would be at rates based, at the
borrower's option, on spreads above certain reference rates such as LIBOR and
Federal funds rates.
The Company believes that cash provided by continuing operations, cash
available under its commercial paper program supported by its credit facility,
and its readily available access to the capital markets are more than
sufficient for its funding needs. New borrowing associated with the financing
of customer purchases of Xerox equipment will continue in 1996 and decisions
regarding the size and timing of any new term debt financing will be made
based on cash flows, match funding needs, refinancing requirements and capital
market conditions.
The Company intends to continue to match fund its contracts receivable.
To assist in managing its interest rate exposure, the Company has entered into
a number of interest rate swap agreements. In general, the Company's
objective is to hedge its variable-rate debt by paying fixed rates under the
swap agreements while receiving variable-rate payments in return.
Additionally, in order to match the duration of its assets, the Company issues
variable-rate and fixed-rate medium term notes which are swapped to commercial
paper rates.
(6)
During 1995, the Company entered into interest rate swap agreements
which effectively converted $1,373 million of variable-rate debt into fixed-
rate debt. These agreements mature at various dates through 2000 and resulted
in a weighted average fixed-rate of interest of 6.19 percent at December 31,
1995. The Company also entered into interest rate swap agreements during 1995
which effectively converted $553 million of variable-rate debt and $380
million of fixed rate debt into variable-rate debt that is indexed to
commercial paper rates. These agreements mature at various dates through
2000.
As of December 31, 1995, the Company's overall debt-to-equity ratio was
6.5 to 1. The Company's practice is to maintain a debt-to-equity ratio of
approximately 6.5 to 1.
Pursuant to a Support Agreement between the Company and Xerox, Xerox has
agreed to retain ownership of 100 percent of the voting capital stock of the
Company and to make periodic payments to the extent necessary to ensure that
the Company's annual pre-tax earnings available for fixed charges 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 schedule, and the
report thereon of KPMG Peat Marwick LLP, independent auditors, are set forth
on pages 10 through 26 hereof.
The financial statement and schedule required herein is 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 Item 8 financial
statement schedule and the report of independent auditors thereon
filed herewith are set forth in the Index to Financial Statements
and Schedule included herein.
(3) The exhibits filed herewith are set forth in the Exhibit
Index included herein.
(b) A Current Report on Form 8-K dated November 3, 1995 reporting Item
7, "Financial Statements, Pro Forma Financial Information and
Exhibits" was filed during the last quarter of the period covered
by this report.
(8)
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.
XEROX CREDIT CORPORATION
BY__/s/ George R. Roth___________
(NAME AND TITLE) George R. Roth, Vice President,
Treasurer and Chief Financial Officer
March 28, 1996
Pursuant to the requirement 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.
March 28, 1996
Signature Title
Principal Executive Officer:
Eunice M. Filter __/s/ Eunice M. Filter___________
President, Chief Executive Officer
and Director
Principal Financial Officer:
George R. Roth __/s/ George R. Roth_____________
Vice President, Treasurer and
Chief Financial Officer
Principal Accounting Officer:
Daniel S. Marchibroda __/s/ Daniel S. Marchibroda______
Controller
Directors:
__/s/ Donald R. Altieri_________
Donald R. Altieri, Director
__/s/ David R. McLellan_________
David R. McLellan, Director
__/s/ Barry D. Romeril__________
Barry D. Romeril, Director
__/s/ Stuart B. Ross____________
Stuart B. Ross, Director
(9)
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 schedule as listed in the accompanying
index. These consolidated financial statements and the financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the financial statement schedule 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, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
January 24, 1996
(10)
XEROX CREDIT CORPORATION
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Financial Statements:
Consolidated statements of income for each of the years in the three-year
period ended December 31, 1995
Consolidated balance sheets at December 31, 1995 and 1994
Consolidated statements of shareholder's equity for each of the years in the
three-year period ended December 31, 1995
Consolidated statements of cash flows for each of the years in the three-year
period ended December 31, 1995
Notes to consolidated financial statements
Report of Independent Auditors
Schedule:
II Valuation and qualifying accounts
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, 1995, 1994 and 1993
(In Millions)
1995 1994 1993
Earned Income:
Contracts receivable $ 352 $ 362 $ 376
Expenses:
Interest 219 202 209
Operating and administrative 14 13 13
Total expenses 233 215 222
Income before income taxes 119 147 154
Provision for income taxes 48 60 63
Net income $ 71 $ 87 $ 91
The accompanying notes are an integral part of the consolidated financial
statements.
(12)
XEROX CREDIT CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In Millions)
ASSETS
1995 1994
Cash and cash equivalents $ - $ -
Investments:
Contracts receivable 3,999 4,203
Notes receivable - Xerox and affiliates 189 59
Unearned income (410) (434)
Allowance for losses (127) (129)
Total investments 3,651 3,699
Net assets of discontinued operations 183 289
Deferred Income Taxes and Other assets 3 2
Total assets $ 3,837 $ 3,990
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Notes payable within one year:
Commercial paper $ 875 $ 1,657
Current portion of notes payable after one year 868 403
Notes payable after one year 1,411 1,246
Notes payable after one year-Xerox and affiliates 75 75
Due to Xerox Corporation, net 52 39
Accounts payable and accrued liabilities 56 56
Deferred income taxes - 9
Total liabilities 3,337 3,485
Shareholder's Equity:
Common stock, no par value, 2,000 shares
authorized, issued, and outstanding 23 23
Additional paid-in capital 219 145
Retained earnings 258 336
Cumulative translation adjustment - 1
Total shareholder's equity 500 505
Total liabilities and shareholder's equity $ 3,837 $ 3,990
The accompanying notes are an integral part of the consolidated financial
statements.
(13)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Years Ended December 31, 1995, 1994 and 1993
(In Millions)
Additional Cumulative
Common Paid-In Retained Translation
Stock Capital Earnings Adjustment Total
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
Net Income 87 87
Dividends (88) (88)
Balance at December 31, 1994 23 145 $ 336 1 505
Net Income 71 71
Dividends* (149) (149)
Capital Contribution 74 74
Other (1) (1)
Balance at December 31, 1995 $ 23 $ 219 $ 258 $ 0 $ 500
* Includes a non-cash dividend of $74 million.
The accompanying notes are an integral part of the consolidated financial
statements.
(14)
XEROX CREDIT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
(In Millions)
1995 1994
1993
Cash Flows from Operating Activities
Net income $ 71 $ 87 $ 91
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net change in operating assets and liabilities (54) (67) (139)
Net cash provided by (used in) operating activities 17 20 (48)
Cash Flows from Investing Activities
Purchases of investments (1,354) (1,563) (1,475)
Proceeds from investments 1,532 1,481 1,264
Net collections from discontinued operations 32 129 232
Net cash provided by investing activities 210 47 21
Cash Flows from Financing Activities
Change in short-term debt, net (782) 4 305
Proceeds from long-term debt 1,033 567 475
Principal payments of long-term debt (403) (551) (695)
Dividends (75) (88) (59)
Net cash (used in) provided by financing activities (227) (68) 26
Decrease in cash and cash equivalents - (1) (1)
Cash and cash equivalents, beginning of year - 1 2
Cash and cash equivalents, end of year $ - $ - $ 1
Supplemental disclosure of non-cash activities:
As Described in Note 2, the Company dividended its $74 million investment
in Xerox Financial Services Life Insurance Company to its parent company
in 1995. The parent company then made a capital contribution of $74 million
by issuing a $74 million interest bearing note to the Company.
The accompanying notes are an integral part of the 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 interest 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.
Xerox computes the allowance for potential losses on all contracts based
upon historical experience and current trends. When the Company purchases the
contracts from Xerox, the portion of Xerox' allowance allocable to the
purchased contracts is deducted from the purchase price and recorded as
Allowance for Potential Losses by the Company. If more contracts are charged
off than were forecast in the initial reserve calculation, Xerox reimburses
the Company for the excess chargeoffs.
Charge Off of Delinquent Receivables
The Company's policy with respect to the charge-off of delinquent
receivables is that receivables are 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.
Reclassifications
Certain prior year balances have been reclassified to conform with the
current year presentation.
(16)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2) Discontinued Operations
In 1990 the Company discontinued its third party financing and real
estate operations. The Company's disposal plan included the sale of three
standalone subsidiary companies (Circle Business Credit, Inc.; LMV Leasing
Inc.; and Highline Financial Services Inc.) which were sold during 1991. The
remaining assets primarily consisted of lease and other interest bearing
receivables. The disposal plan contemplated the recovery of these assets
primarily in the course of normal maturities. This continues to be the
Company's strategy. Since the time of discontinuance the Company has not
originated any new financing or real estate business and its management
activities have been almost exclusively dedicated to liquidation of the
assets. In accordance with APB No. 30, all material related items of income
and loss have previously been estimated and recorded and no longer affect the
reported results of operations.
Through December 31, 1995, the Company received net cash proceeds of
$2,445 million from the sale of discontinued business units, asset
securitizations, sales, and runoff collection activities. Of the $2,445
million, $32 million, $129 million and $232 million was received in 1995, 1994
and 1993, respectively. The amounts received have been consistent with the
Company's estimates in the disposal plan and were primarily used to reduce the
Company's short-term indebtedness. At December 31, 1995, the Company remains
contingently liable for approximately $9 million under recourse provisions
associated with the securitization transactions.
Approximately $58 million (32 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 1996 and in future 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. The Company has
consistently assigned debt to discontinued operations based on the net assets
of discontinued operations and debt to equity ratios that existed at the time
the assets were acquired. This assigned debt is expected to be paid with the
liquidation of the remaining asset portfolio of the discontinued operations.
Interest expense assigned to discontinued businesses for 1994 and 1993 was $10
million and $14 million, respectively. Beginning in 1995, the amount of
interest expense that would have been allocated to discontinued operations is
insignificant and therefore is now reported within continuing operations.
In June 1995, the Company's parent, Xerox Financial Services, Inc.(XFSI),
sold Xerox Financial Services Life Insurance Company (XFSLIC). In connection
with the sale, the Company's $74 million investment in XFSLIC, reported as a
component of net assets of discontinued operations at the time of the sale,
was dividended to XFSI. XFSI in turn made a capital contribution of $74
million to the Company by issuing a $74 million interest-bearing note to the
Company. This note is an asset of the Company's continuing operations.
(17)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized information of discontinued operations for the three years ended
December 31, 1995 follows:
(In millions)
1995 1994 1993
Balance Sheet Data
Gross finance receivables $ 76 $ 109 $ 202
Unearned income (25) (31) (53)
Other assets 132 211* 282*
Investment in discontinued operations, net $ 183 $ 289 $ 431
Assigned short- and long-term debt $ 98 $ 154 $ 244
* Includes a $74 million investment in Xerox Financial Services Life
Insurance Company, a subsidiary of the Company's parent, Xerox Financial
Services, Inc.
Contractual maturities of the gross finance receivables at December 31,1995
follow (in millions):
1996 $ 14
1997 15
1998 2
1999 4
2000 5
2001 and thereafter 36
Total 76
(18)
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 arise 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 $1,354 million in 1995, $1,563
million in 1994, and $1,475 million in 1993. The Company was charged $10
million in 1995 and $11 million in both 1994 and 1993 by Xerox for
administrative costs associated with the contracts receivable purchased.
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 as of December 31, 1995 any revaluation
of the contracts receivable would result in a fair value in excess of the
carrying value of these receivables.
The scheduled maturities of contracts receivable at December 31, 1995
are as follows (in millions):
1996 $1,657
1997 1,148
1998 719
1999 346
2000 121
Thereafter 8
Total $3,999
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 the $189 million notes receivable balance from Xerox and
affiliates are receivables from related parties payable on demand at various
interest rates. $124 million of these amounts are floating rate notes from
XFSI.
(19)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4) Lines of Credit and Interest Rate Swaps
At December 31, 1995, the Company and Xerox had joint access to a $5.0
billion revolving credit agreement with various banks, which expires December
14, 2000. This agreement is unused and is available to back the issuance of
commercial paper. At December 31, 1995, the Company had a total of $875
million of commercial paper outstanding. The average interest rate paid on
commercial paper issued in 1995 was 5.9 percent.
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 commercial
paper-rate payments in return. These swap agreements effectively convert an
amount (equal to the notional amount) of underlying variable-rate commercial
paper 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.
The Company does not enter into swap transactions for trading or other
speculative purposes. The Company's policies on the use of such derivative
instruments prescribe an investment grade counterparty credit floor and at
least quarterly monitoring of market risk on a counterparty-by-counterparty
basis. Based upon its ongoing evaluation of the replacement cost of its
derivatives transactions and counterparty creditworthiness, the Company
considers the risk of credit default significantly affecting its financial
position or results of operations to be remote. The Company's interest rate
hedging activities are largely unaffected by changes in market conditions as
swaps are typically held to maturity in order to lock in interest spreads on
underlying transactions.
The aggregate notional amounts of interest rate swaps outstanding at
December 31, 1995 and 1994 are as follows:
(Dollars in millions)
1995 1994
Pay fixed/receive variable $2,278 $1,555
Pay variable/receive variable 978 425
Pay variable/receive fixed 280 -
$3,536 $1,980
Average interest payment rates 5.97% 5.54%
At December 31, 1995 and 1994, the Company's swap agreements had
aggregate net fair values of $(15) million and $45 million, respectively.
These values represent the estimated net amounts the Company would have (paid)
received had the agreements been terminated as of December 31, 1995 and 1994,
respectively. The fair values for interest rate swap agreements were
calculated by the Company based on market conditions at year end 1995 and
supplemented with quotes from banks. The Company has no present plans to
terminate any of these agreements prior to their scheduled maturities.
The maturities of the Company's swaps outstanding as of December 31,
1995 are: 1996 - $1,049 million, 1997 - $1,338 million, 1998 - $690 million,
1999 and thereafter - $459 million.
(20)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(5) Notes Payable After One Year
A summary of notes payable at December 31, 1995 and 1994 follows:
(In Millions)
1995 1994
5.375% Notes due 1995 - 150
Floating Rate Notes due 1995 (a) - 100
8.75% Notes due 1995 - 150
6.25% Notes due 1996 200 200
Medium Term Notes due 1996 (b) 100 100
Floating Rate Notes due 1996 (a) 350 220
Medium Term Notes due 1997 (b) 147 147
Floating Rate Notes due 1997 (a) 530 200
Medium Term Notes due 1998 (b) 100 -
Floating Rate Notes due 1998 (a) 120 -
10.00% Notes due 1999 150 150
10.125% Notes due 1999 (c) 150 150
Floating Rate Notes due 2000 (d) 353 -
Floating Rate Notes due 2048 (e) 61 61
Other Notes due 1996 - 1997 18 21
Subtotal $2,279 $1,649
Less current portion of notes payable
after one year (868) (403)
Total Notes Payable After one Year $1,411 $1,246
(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) Medium Term Notes due in 1996, 1997, and 1998 have weighted average
interest rates of 5.24%, 5.99% and 7.13%, respectively.
(c) The notes are expected to be redeemed on April 15, 1996, at their
principal amount plus accrued interest.
(d) $50 million of Floating Rate Notes due 2000 were redeemed subsequent to
year-end at their principal amount plus accrued interest.
(e) The notes mature August 15, 2048 and are repayable annually each August
15th at the option of the noteholders. 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
5.80 percent.
(21)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Principal payments on notes payable for the next five years are (in
millions):
1996 $ 868
1997 677
1998 220
1999 150
2000 303
Thereafter 61
Total $ 2,279
Certain of the Company's debt agreements allow it to redeem outstanding debt,
usually at par, prior to scheduled maturity. Outstanding debt issues with
such call features are classified on the balance sheet and in the preceding
five-year maturity summary 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 at that time.
Interest payments on notes payable for 1995, 1994 and 1993 were $142
million, $137 million, and $148 million, respectively. Interest payments on
commercial paper for 1995, 1994 and 1993 were $79 million, $66 million and $48
million, respectively. The weighted-average commercial paper interest rates
for 1995, 1994 and 1993 were 5.9 percent, 4.4 percent and 3.3 percent,
respectively.
At December 31, 1995 and 1994, carrying values of notes payable were
$2,279 million and $1,649 million, respectively. The fair values of the
Company's notes payable at December 31, 1995 and 1994 were $2,309 million and
$1,640 million, respectively, based on quoted market prices for the notes or
other issues with similar features and maturity dates. The difference between
the fair value and the carrying value represents the theoretical net amounts
the Company would have paid or received if it had retired all notes payable at
December 31, 1995 or 1994, respectively. The Company has no plans to retire
its notes payable prior to their call or final maturity dates other than as
described above.
The original issue discount and other expenses associated with the debt
offerings are amortized over the term of the related issue.
(22)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Income Taxes
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 $48
million, $86 million, and $136 million in 1995, 1994 and 1993, respectively.
The Company received a net of $3 million in 1995 from taxing authorities for
Company operations, and paid net $10 million in 1994 and $1 million in 1993,
to taxing authorities for Company operations not included in Xerox'
consolidated tax returns.
The components of income from continuing operations before taxes and the
provision for income taxes are as follows:
(In Millions)
1995 1994 1993
Income from continuing operations
before income taxes: $ 119 $ 147 $ 154
Federal income taxes
Current $ 38 $ 47 $ 50
Deferred - - (1)
State income taxes
Current 10 13 14
Deferred - - -
Total provision for income taxes $ 48 $ 60 $ 63
A reconciliation of the effective tax rate from the U.S. Federal
statutory tax rate follows:
1995 1994 1993
U.S. Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal
income tax benefit 5.3 5.8 5.9
Effective tax rate 40.3% 40.8% 40.9%
(23)
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, 1995 follows:
(In millions)
1995 1994
Tax effect of future tax deductions:
Discontinued real-estate tax benefit
and other $ 36 $ 30
Tax effect on future taxable income:
Discontinued leverage leases and other (35) (39)
Total deferred taxes, net $ 1 $ (9)
The Company believes 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.
(24)
XEROX CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(8) Quarterly Results of Operations (Unaudited)
A summary of interim financial information follows:
(In Millions)
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
1995
Earned income $ 92 $ 88 $ 87 $ 85 $ 352
Interest expense 53 55 57 54 219
Operating and administrative
expenses 3 4 3 4 14
Income before Income Taxes 36 29 27 27 119
Income taxes 15 11 11 11 48
Net income $ 21 $ 18 $ 16 $ 16 $ 71
1994
Earned income $ 93 $ 89 $ 91 $ 89 $ 362
Interest expense 52 50 52 48 202
Operating and administrative
expenses 4 3 2 4 13
Income before Income Taxes 37 36 37 37 147
Income taxes 15 15 15 15 60
Net income $ 22 $ 21 $ 22 $ 22 $ 87
(25)
SCHEDULE II
XEROX CREDIT CORPORATION
Valuation and Qualifying Accounts
Years Ended December 31, 1995, 1994 and 1993
(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)
1995
Allowance for losses-
continuing operations $ 129 $ - $ 49 $ 51 $ 127
1994
Allowance for losses-
continuing operations $ 153 $ - $ 19 $ 43 $ 129
1993
Allowance for losses-
continuing operations $ 139 $ - $ 63 $ 49 $ 153
(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.
(26)
XEROX CREDIT CORPORATION
Form 10-K
For the Year Ended December 31, 1995
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 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.
(b) 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.
(c) 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.
(d) Indenture dated as of May 1, 1994, between Registrant and State
Street Bank and Trust Company (formerly The First
National Bank of Boston) 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
Executive Committee of the Board of Directors.
Incorporated by reference to Exhibit 4 (a) to Registrant's
Registration Statement No. 33-53533 and to Exhibits 4 (a)(1)
and 4 (a)(2) to Registrant's Registration Statement No. 33-43470.
(27)
XEROX CREDIT CORPORATION
Form 10-K
For the Year Ended December 31, 1995
Index of Exhibits (continued)
Document
(e) Indenture dated as of October 2, 1995 between Registrant and State
Street Bank and 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.
Incorporated by reference to Exhibit 4(a) to Registrant's
Registration Statement No. 33-61481.
(f) 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 .
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 29 of this Report on Form 10-K.
(b) Computation of Xerox' Ratio of Earnings to Fixed Charges.
See Page 30 of this Report on Form 10-K.
(23) Consent of KPMG Peat Marwick LLP.
See Page 31 of this Report on Form 10-K.
(28)