FORM 10-Q 
                      SECURITIES AND EXCHANGE COMMISSION 
                           WASHINGTON, D.C.  20549 
 
(Mark One) 
( X )     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
          EXCHANGE ACT OF 1934 
 
          For the quarterly period ended:  June 30, 1997 
                                      OR 
(   )     Transition Report Pursuant to Section 13 or 15(d) of the Securities 
          Exchange Act of 1934 
          For the transition period from :                 to 
 
Commission file number:  1-8133 
 
                           XEROX CREDIT CORPORATION 
            (Exact name of Registrant as specified in its charter) 
Delaware                                                           06-1024525 
(State or other jurisdiction of                              (I.R.S. Employer 
incorporation or organization)                            Identification No.) 
 
100 First Stamford Place, Stamford, Connecticut                         06904 
(Address of principal executive offices)                           (Zip Code) 
 
                                (203) 325-6600 
             (Registrant's telephone number, including area code) 
 
      Securities registered pursuant to Section 12(b) of the Act: 
 
Title of Each Class                 Name of Each Exchange on Which Registered 
 
10% Notes due 1999                  New York Stock Exchange 
 
 
      Securities registered pursuant to Section 12(g) of the Act:  None 
 
Indicate by check mark whether the Registrant (1) has filed all reports  
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of  
1934 during the preceding 12 months (or for such shorter period that the  
Registrant was required to file such reports), and (2) has been subject to  
such filing requirements for the past 90 days.     Yes:     X         No: 
 
Indicate the number of shares outstanding of each of the issuer's classes of  
common stock, as of the close of the latest practicable date. 
 
   Class                                  Outstanding as of July 31, 1997 
Common Stock                                            2,000 
 
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)  
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED  
DISCLOSURE FORMAT. 
 
 
 
                                      THIS DOCUMENT CONSISTS OF 13 PAGES 
 
 
(1) 
 
 
 
 
 
This Form 10-Q contains certain forward-looking statements and information  
relating to the Company that are based on the beliefs of management as well  
as assumptions made by and information currently available to management.   
The words "anticipate," "believe," "estimate," "expect," "intends" and  
similar expressions, as they relate to the Company or the Company's  
management, are intended to identify forward-looking statements.  Such  
statements reflect the current views of the Company with respect to future  
events and are subject to certain risks, uncertainties and assumptions.   
Should one or more of these risks or uncertainties materialize, or should  
underlying assumptions prove incorrect, actual results may vary materially  
from those described herein as anticipated, believed, estimated or expected.   
The Company does not intend to update these forward-looking statements. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) 
PART 1.   FINANCIAL INFORMATION 
Item 1.   Financial Statements 
 
 
                           XEROX CREDIT CORPORATION 
                      CONSOLIDATED STATEMENTS OF INCOME 
                               (In Millions) 
 
 
                                       Three Months Ended    Six Months Ended 
                                             June 30,             June 30, 
                                          1997     1996        1997     1996 
Earned income: 
 
   Contracts and notes receivable       $   90   $   85      $  178   $  173 
 
Expenses: 
 
   Interest                                 55       51         108      103 
   Operating and administrative              3        3           6        7 
 
      Total expenses                        58       54         114      110 
 
Income before income taxes                  32       31          64       63 
 
Provision for income taxes                  13       13          26       26 
 
 
Net income                              $   19   $   18      $   38   $   37 
 
 
See accompanying notes. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) 
 
 
 
 
                           XEROX CREDIT CORPORATION 
                          CONSOLIDATED BALANCE SHEETS 
                                 (In Millions) 
 
                                     ASSETS 
                                                       June 30,  December 31, 
                                                          1997          1996 
 
Cash and cash equivalents                              $     -       $     - 
 
Investments: 
    Contracts receivable                                 4,446         4,272 
    Notes receivable - Xerox and affiliates                 56           130 
    Unearned income                                       (574)         (534) 
    Allowance for losses                                  (119)         (123) 
        Total investments                                3,809         3,745 
 
Net assets of discontinued operations                      110           152 
Deferred income taxes and other assets                       1             2 
 
        Total assets                                   $ 3,920       $ 3,899 
 
 
                      LIABILITIES AND SHAREHOLDER'S EQUITY 
 
Liabilities: 
    Notes payable within one year: 
      Commercial paper                                 $ 1,744       $ 1,126 
      Current portion of notes payable after one year      741           886 
      Notes payable - Xerox and affiliates                  15            20 
    Notes payable after one year                           868         1,238 
    Notes payable after one year-Xerox and affiliates        -            75 
    Due to Xerox Corporation, net                           21            16 
    Accounts payable and accrued liabilities                22            31 
    Deferred income taxes                                   29            31 
 
        Total liabilities                                3,440         3,423 
 
Shareholder's Equity: 
    Common stock, no par value, 2,000 shares 
        authorized, issued, and outstanding                 23            23 
    Additional paid-in capital                             219           219 
    Retained earnings                                      238           234 
 
        Total shareholder's equity                         480           476 
 
        Total liabilities and shareholder's equity     $ 3,920       $ 3,899 
            
 
 
 
See accompanying notes. 
 
 
 
 
 
 
 
 
 
 
(4) 
 
 
                              XEROX CREDIT CORPORATION 
                        CONSOLIDATED STATEMENTS OF CASH FLOWS 
                                   (In Millions) 
 
                                                           Six Months Ended 
                                                                June 30, 
                                                             1997      1996 
Cash Flows from Operating Activities 
  Net income                                               $   38    $   37 
  Adjustments to reconcile net income to net cash 
    provided by operating activities: 
 
    Net change in operating assets and liabilities            (11)       21 
  
Net cash provided by operating activities                      27        58 
 
Cash Flows from Investing Activities 
  Purchases of investments                                   (997)     (931) 
  Proceeds from investments                                   859       921 
  Net collections from discontinued operations                 42        13 
  
Net cash (used in) provided by investing activities           (96)        3 
 
Cash Flows from Financing Activities 
  Change in commercial paper, net                             618       224 
  Proceeds from long-term debt                                200       500 
  Principal payments on long-term debt                       (715)     (735) 
  Dividends                                                   (34)      (50) 
 
Net cash provided by (used in) financing activities            69       (61) 
 
 
  Increase in cash and cash equivalents                         -         - 
 
  Cash and cash equivalents, beginning of period                -         - 
 
  Cash and cash equivalents, end of period                 $    -    $    - 
 
 
 
 
 
 
 
 
 
 
See accompanying notes. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(5) 
 
                           XEROX CREDIT CORPORATION 
                  Notes to Consolidated Financial Statements 
 
 
(1)  The consolidated financial statements presented herein have been 
     prepared by Xerox Credit Corporation (the "Company") in accordance with 
     the accounting policies described in its Annual Report on Form 10-K for 
     the fiscal year ended December 31, 1996 and should be read in 
     conjunction with the Notes to Consolidated Financial Statements which 
     appear in that report. 
 
     In the opinion of management, all adjustments (consisting only of normal 
     recurring adjustments) which are necessary for a fair statement of the 
     operating results for the interim periods presented have been made. 
 
     Interim financial data presented herein are unaudited. 
 
     Certain prior year balances have been reclassified to conform to the 
     current year presentation. 
 
(2)  During the first six months of 1997, the Company redeemed the following 
     notes (in millions): 
 
 
     5.69% Notes                               $ 25 
     5.76% Notes                                 31 
     5.79% Notes                                 25 
     5.81% Notes                                 25 
     5.82% Notes                                 25 
     Variable Rate Notes ("VRNs")               430 
 
     Total debt redeemed at maturity            561 
 
     Redeemed prior to maturity                 154 
 
        
     Total debt redeemed                       $715 
 
(3)  During the first six months of 1997, the Company sold a total of 
     $200 million of medium-term notes.  Of this amount, $50 million are 
     fixed-rate notes which mature in 1998, $25 million are fixed-rate notes 
     which mature in 2007, and $125 million are fixed and adjustable rate 
     notes which mature in 2012.  The interest rates on all of this debt have 
     been swapped into LIBOR-based rates. 
 
(4)  On July 1, 1997, the Company issued $250 million of Cash Exchangeable 
     Equity-Linked Notes due July 1, 2002 with a coupon of 2.875%.  Under the 
     terms of the notes, the noteholders have the right to participate in the 
     price appreciation of Xerox Common Stock, payable in cash, if the share 
     price exceeds $96.25.  The notes may also be put by investors 
     beginning August 25, 1997 subject to specified conditions.  The 
     Company has hedged the exposure to the Xerox stock price through a 
     principal-adjusted interest rate swap.  The net result is $250 million 
     of floating rate debt at a LIBOR-based rate.  
 
     On July 30, 1997, the Company issued $25 million of adjustable-rate 
     notes due 2012 and on August 5, 1997, the Company issued $25 million of 
     7.125% notes due 2012.  Interest obligations on both of these 
     transactions have been swapped to LIBOR-based rates. 
 
 
 
 
 
(6) 
(5)  The terms of a Support Agreement with Xerox provide that the Company 
     will receive from Xerox income maintenance payments, to the extent 
     necessary, so that the Company's earnings shall not be less than 1.25  
     times its fixed charges. For purposes of this calculation, both  
     earnings and fixed charges are as defined in Section 1404 (formerly  
     Section 81(2)) of the New York Insurance Law.  In addition, the  
     agreement requires that Xerox retain 100 percent ownership of the  
     Company's voting capital stock. 
 
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and 
            Results of Operations 
 
RESULTS OF OPERATIONS 
                           Continuing Operations 
 
      Contracts receivable income represents income earned under an agreement  
with Xerox pursuant to which the Company purchases long-term accounts  
receivable associated with Xerox' sold equipment. These receivables arise  
primarily from Xerox equipment sold under installment sales and sales-type  
leases. 
 
      Earned income from contracts and notes receivable for the second  
quarter of 1997 was $90 million versus $85 million in the corresponding  
period in 1996, and $178 million and $173 million for the six-month periods  
ended June 30, 1997 and 1996, respectively.  The increase in earned income  
which resulted from having a higher average contract receivables portfolio in  
1997 was partially offset by a lower average interest rate.   
 
      Second quarter interest expense increased to $55 million in 1997 from  
$51 million in the same period in 1996.  For the six-month period ended June 
30, 1997, interest expense increased to $108 million from $103 million in 
1996.   This increase is principally attributable to the increase in total  
debt related to a larger contracts receivable portfolio in 1997. 
 
      Since substantially all of the Company's contracts receivable earn  
fixed rates of interest, the Company "match funds" the contracts by swapping  
variable-rate commercial paper and medium term notes into fixed rates of  
interest for specified maturities.  This process is employed because it  
effectively "locks in" a spread and eliminates the risk of shrinking interest  
margins when interest rates rise.  Conversely, this practice effectively  
eliminates the opportunity to increase margins when interest rates decline.   
The Company intends to continue to match its contracts receivable and  
indebtedness in order to ensure an adequate spread between interest income  
and interest expense. 
 
     Operating and administrative expenses were $3 million for the second  
quarter of both 1997 and 1996. For the six-month periods ended June 30, 1997  
and 1996, operating and administrative expenses totaled $6 million and $7  
million respectively.  These expenses are incurred primarily to administer  
the contracts receivable purchased from Xerox.  The decrease is attributable  
mainly to improvements in systems processing and other productivity measures  
that have occurred during the year. 
 
      The effective income tax rate for the first six months of 1997 and 1996  
was 40.6 percent and 41.3 percent, respectively. 
 
 
 
 
 
 
(7) 
                           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 June 30, 1997, the Company received net cash proceeds of  
$2,518 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 the disposal  
plan and were primarily used to reduce the Company's short-term indebtedness. 
 
     During the first six months of 1997, the Company reduced net assets of  
discontinued operations by approximately $42 million, primarily through  
contractual maturities and cash sales. 
 
     Since a significant portion of the remaining $110 million portfolio  
represents passive lease receivables, some with long-duration contractual  
maturities and unique tax attributes, the Company expects that the wind-down  
of the portfolio will continue to be a gradual process.  The Company believes  
that the liquidation of the remaining assets will not result in a net loss. 
 
 
CAPITAL RESOURCES AND LIQUIDITY 
 
      The Company's principal sources of funds are cash from the collection  
of Xerox contracts receivable and borrowings. 
 
      Net cash provided by operating activities was $27 million in the first  
six months of 1997, compared to $58 million provided by operating activities  
during the same period in 1996.  The decrease is primarily due to a change in  
the timing of intercompany settlements. 
 
      Net cash used in investing activities was $96 million during the first  
six months of 1997, compared with $3 million provided during the same period  
in 1996.  The change primarily results from increased net purchases of  
contracts receivable from Xerox in the first half of 1997 over the first half  
of 1996. 
 
      Net cash provided by financing activities was $69 million in the first  
half of 1997 compared to $61 million of usage in the first half of 1996.   
Cash provided by financing has grown due to a higher level of contract  
purchases from Xerox and the year-end 1996 change in the Company's leverage  
guideline from 6.5 to 1 to 7.0 to 1. 
 
      At June 30, 1997, the Company had newly registered and unused domestic  
shelf debt capacity of $2 billion.  In addition, a $2 billion Euro-debt  
facility is available to Xerox, Rank Xerox Capital (Europe) and the Company  
of which $1,367 million remained unused at June 30, 1997. 
 
      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. 
 
 
 
 
 
 
 
 
 
 
 
 
(8) 
       The Company believes that cash provided by continuing operations, cash  
available under its commercial paper program supported by its credit  
facility, and its access to the capital markets are more than sufficient to  
ensure its funding needs will be met.  New borrowing associated with the  
financing of customer purchases of Xerox equipment will continue in 1997 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 manage its commercial paper outstandings, the  
Company opportunistically issues variable- and fixed-rate medium term notes  
which are swapped to attractive commercial paper or LIBOR-based rates. 
 
      During the first six months of 1997, the Company entered into interest  
rate swap agreements which effectively converted $654 million of variable- 
rate debt into fixed-rate debt.  These agreements mature at various dates  
through 2002 and result in a weighted average fixed-rate of interest of 6.35  
percent.  The Company also entered into interest rate swap agreements during  
the first half of 1997 which effectively converted $200 million of fixed- and  
adjustable-rate debt into variable-rate debt indexed to LIBOR rates.   These  
agreements mature in 1998, 2007 and at various dates in 2012. The agreements  
which mature in 2007 and 2012 are cancelable by the respective counterparties  
on interest payment dates beginning in 1999 and 2001.  In addition, on July  
1, 1997, the Company entered into a $250 million interest rate swap agreement  
to convert the obligations on its $250 million Cash Exchangeable Equity- 
Linked Notes due July 1, 2002 to a LIBOR-based rate. 
 
      As of June 30, 1997, the Company's overall debt-to-equity ratio was 7.0  
to 1. The Company's practice is to maintain a debt-to-equity ratio of  
approximately 7.0 to 1.  Prior to December 31, 1996, the Company's practice  
was to maintain a debt-to-equity ratio of approximately 6.5 to 1. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(9) 
PART II.  OTHER INFORMATION 
 
 
Item 1.   Legal Proceedings 
 
          None. 
 
 
Item 6.   Exhibits and Reports on Form 8-K 
 
          (a)   Exhibits 
 
                Exhibit 3  (a) Articles of Incorporation of Registrant filed 
                               with the Secretary of State of Delaware on 
                               June 23, 1980. 
 
                               Incorporated by reference to Exhibit 3(a) to 
                               Registration Statement No. 2-71503. 
 
                           (b) By-Laws of Registrant, as amended through 
                               September 1, 1992. 
 
                               Incorporated by reference to Exhibit 3 (b) 
                               to Registrant's Quarterly Report 
                               for the Quarter ended March 31, 1997. 
 
                Exhibit 12 (a) Computation of the Company's Ratio of Earnings 
                               to Fixed Charges. 
 
                           (b) Computation of Xerox' Ratio of Earnings 
                               to Fixed Charges. 
 
                Exhibit 27  Financial Data Schedule (Electronic Form Only) 
 
          (b)   Reports on Form 8-K. 
 
                None 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10) 
 
 
 
 
 
 
 
 
                              SIGNATURE 
 
 
      Pursuant to the requirements of the Securities Exchange Act of 1934, 
the Registrant has duly caused this report to be signed on its behalf by the 
undersigned, thereunto duly authorized. 
 
                             XEROX CREDIT CORPORATION 
 
 
 
 
                             BY:  /s/  George R. Roth 
 
                             George R. Roth, Vice President, 
                             Treasurer and Chief Financial Officer 
 
                             August 07, 1997 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(11)