Xerox 2003 Annual Report Download - page 37

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materially adversely affect our results of operations.
We have the right at any time to prepay any loans out-
standing under or terminate the 2003 Credit Facility.
Credit Ratings: Our credit ratings as of February 27,
2004 were as follows:
Senior
Unsecured
Debt Outlook Comments
Moody’s(1) B1 Stable The Moody’s rating was
upgraded from B1
(with a negative outlook)
in December 2003.
S&P B+ Negative The S&P rating on Senior
Secured Debt is BB-.
Fitch BB Stable The Fitch rating was upgraded
from BB- (with a negative
outlook) in June 2003.
(1) In December 2003, Moody’s assigned to Xerox a first time SGL-1 rating.
Our ability to obtain financing and the related cost
of borrowing is affected by our debt ratings, which are
periodically reviewed by the major credit rating agen-
cies. Our current credit ratings are below investment
grade and we expect our access to the public debt
markets to be limited to the non-investment grade
segment until our ratings have been restored.
Specifically, until our credit ratings improve, it is
Other Commercial Commitments and
Contingencies:
Pension and Other Post-Retirement Benefit Plans: We
sponsor pension and other post-retirement benefit
plans that require periodic cash contributions. Our
2003 cash fundings for these plans were $672 million
for pensions and $101 million for other post-retire-
ment plans. Our anticipated cash fundings for 2004 are
$63 million for pensions and $114 million for other
post-retirement plans. Cash contribution requirements
for our domestic tax qualified pension plans are gov-
erned by the Employment Retirement Income Security
Act (ERISA) and the Internal Revenue Code. Cash con-
tribution requirements for our international plans are
subject to the applicable regulations in each country.
The expected contributions for pensions for 2004 of
$63 million include no expected contributions to the
domestic tax qualified plans because these plans have
already exceeded the ERISA minimum funding
requirements for the plans’ 2003 plan year due to
funding of approximately $450 million in 2003. Of this
amount, $325 million was accelerated or in excess of
required amounts. Our post-retirement plans are non-
funded and are almost entirely related to domestic
operations. Cash contributions are made each year to
cover medical claims costs incurred in that year.
Flextronics: As previously discussed, in 2001 we out-
sourced certain manufacturing activities to Flextronics
under a five-year agreement. During 2003, we pur-
chased approximately $910 million of inventory from
Flextronics. We anticipate that we will purchase
approximately $915 million of inventory from
unlikely we will be able to access the low-interest
commercial paper markets or to obtain unsecured
bank lines of credit.
Summary – Financial Flexibility and Liquidity: With
$2.5 billion of cash and cash equivalents on hand at
December 31, 2003 and borrowing capacity under our
2003 Credit Facility of $700 million, less $51 million uti-
lized for letters of credit, we believe our liquidity
(including operating and other cash flows that we
expect to generate) will be sufficient to meet operating
cash flow requirements as they occur and to satisfy all
scheduled debt maturities for at least the next twelve
months. Our ability to maintain positive liquidity going
forward depends on our ability to continue to generate
cash from operations and access to the financial mar-
kets, both of which are subject to general economic,
financial, competitive, legislative, regulatory and other
market factors that are beyond our control. We cur-
rently have a $2.5 billion shelf registration that enables
us to access the market on an opportunistic basis and
offer both debt and equity securities.
Contractual Cash Obligations and Other Commercial
Commitments and Contingencies: At December 31,
2003, we had the following contractual cash obliga-
tions and other commercial commitments and contin-
gencies ($ in millions):
Year 1 Years 2-3 Years 4-5 There-
2004 2005 2006 2007 2008 after
Long-term debt, including capital lease obligations(1) $4,194 $2,129 $486 $775 $782 $2,758
Minimum operating lease commitments(2) 235 190 148 118 96 383
Liabilities to subsidiary trusts issuing preferred securities(3) 1,067 – 77 – – 665
Total contractual cash obligations $5,496 $2,319 $711 $893 $878 $3,806
(1) Refer to Note 10 to our Consolidated Financial Statements for additional information related to long-term debt (amounts include principal portion only).
(2) Refer to Notes 5 and 6 to our Consolidated Financial Statements for additional information related to minimum operating lease commitments.
(3) Refer to Note 14 to our Consolidated Financial Statements for additional information related to liabilities to subsidiary trusts issuing preferred securities
(amounts include principal portion only). The amounts shown above correspond to the year in which the preferred securities can first be put to us. We have
the option to settle the 2004 amounts in stock if such loan is put to us.