Xerox 2002 Annual Report Download - page 36

34
We intend to access the non-investment grade pub-
lic debt markets until our credit ratings are restored to
investment grade. This, together with possible oppor-
tunistic access to the equity or equity-linked markets,
can provide significant sources of additional funds
until full access to the public debt markets is restored.
Contractual Cash Obligations and Other Commercial
Commitments and Contingencies: At December 31,
2002, we had the following contractual cash obliga-
tions and other commercial commitments and contin-
gencies:
Contractual Cash Obligations including Cumulative
Preferred Securities ($ in millions):
There-
2003 2004 2005 2006 2007 after
Long-term
debt $3,980 $3,909 $4,016 $ 56 $296 $1,517
Short-term
debt 397 – – – – –
Minimum
operating
lease
commit-
ments 238 202 157 124 71 346
Total
contractual
cash
obligations
$4,615 $4,111 $4,173 $180 $367 $1,863
Cumulative Preferred Securities: As of December 31,
2002, we have four series of outstanding preferred
securities as summarized below. The redemption
requirements and the annual cumulative dividend
requirements on our outstanding preferred stock are
as follows:
•Series B Convertible Preferred Stock (“ESOP
Shares”): The balance at December 31, 2002 was
$508 million, net of deferred ESOP benefits, and is
redeemable in shares of common stock or cash, at
our option, as employees with vested shares leave
the Company. Annual cumulative dividend require-
ments are $6.25 per share. Dividends declared but
not yet paid amounted to $11 million at December
31, 2002. At December 31, 2002, we had 7,023,437
shares issued and outstanding.
•7.5 percent Convertible Trust Preferred Securities:
The balance at December 31, 2002 was $1,016 mil-
lion, and is putable in 2004 in cash or in shares of
common stock at a redemption value of $1,035 mil-
lion at the holders’ option. Annual cumulative
distribution requirements of approximately
$78 million are $3.75 per Preferred Security on
20.7 million securities. The first three years’
dividend requirements were funded at issuance
and are invested in U.S. Treasury securities held
by a separate trust. As of December 31, 2002,
$151 million of the original $229 million remained
in the trust.
•8 percent Convertible Trust Preferred Securities:
The balance at December 31, 2002 was $640 mil-
lion, and is redeemable in 2027 at a redemption
value of $650 million. Annual cumulative dividend
requirements are $80 per security on 650,000 secu-
rities or $52 million per year.
•Canadian Deferred Preferred Stock: The balance at
December 31, 2002 was $45 million, and is
redeemable in 2006. Annual cumulative non-cash
dividend requirements will increase this amount
to its 2006 redemption value of approximately
$56 million.
Other Commercial Commitments and Contingencies:
Flextronics: As previously discussed, in 2001 we
outsourced certain manufacturing activities to
Flextronics under a five-year agreement. During 2002,
we purchased approximately $1 billion of inventory
from Flextronics. We anticipate that we will purchase
approximately $900 million of inventory from
Flextronics during 2003 and expect to increase this
level commensurate with our sales in the future.
Fuji Xerox: We had product purchases from Fuji
Xerox totaling $727 million, $598 million, and
$812 million in 2002, 2001 and 2000, respectively. Our
purchase commitments with Fuji Xerox are in the
normal course of business and typically have a lead
time of three months. We anticipate that we will
purchase approximately $700 million of products
from Fuji Xerox in 2003.
Other Purchase Commitments: We enter into other
purchase commitments with vendors in the ordinary
course of business. Our policy with respect to all
purchase commitments is to record losses, if any,
when they are probable and reasonably estimable.
We currently do not have, nor do we anticipate,
material loss contracts.
EDS Contract: We have an information management
contract with Electronic Data Systems Corp. (“EDS”)
to provide services to us for global mainframe system
processing, application maintenance and enhance-
ments, desktop services and help desk support, voice
and data network management, and server manage-
ment. In 2001, we extended the original ten-year con-
tract through June 30, 2009. Although there are no
minimum payments required under the contract, we
anticipate making the following payments to EDS