Xerox 2003 Annual Report Download - page 62

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exchange (including the convertible debt mentioned
above). A gain of $1 was recorded in connection with
these transactions. During 2001, we retired $374 of
long-term debt through the exchange of 41 million
shares of common stock valued at $311. A gain of $63
was recorded in connection with these transactions.
The gains were recorded in Other expenses, net in our
Consolidated Statements of Income. The shares were
valued using the daily volume-weighted average price
of our common stock over a specified number of days
prior to the exchange, based on contractual terms.
Lines of Credit: As of December 31, 2002, we had
$3.5 billion of debt outstanding (including a $2 billion
term loan and a fully drawn $1.5 billion revolving cred-
it facility). In June 2003, using the proceeds from pub-
lic offerings and available cash on hand, we repaid
outstanding amounts under this agreement and we
subsequently entered into the 2003 Credit Facility. The
2003 Credit Facility consists of a fully drawn $300 term
loan and a $700 revolving credit facility that includes a
$200 letter of credit sub-facility, under which $51 of let-
ters of credit were outstanding at December 31, 2003.
Xerox is the only borrower of the term loan. The
revolving credit facility is available, without sub-limit,
to Xerox and certain foreign subsidiaries of Xerox,
including Xerox Canada Capital Limited, Xerox Capital
(Europe) plc and other qualified foreign subsidiaries
(excluding Xerox, the “Overseas Borrowers”). The
2003 Credit Facility matures on September 30, 2008. In
conjunction with the 2003 Credit Facility, debt issuance
costs of $29 were deferred.
Subject to certain limits described in the following
paragraph, the obligations under the 2003 Credit
Facility are secured by liens on substantially all the
assets of Xerox and each of our U.S. subsidiaries that
have a consolidated net worth from time to time of
$100 or more (the “Material Subsidiaries”), excluding
Xerox Credit Corporation (“XCC”) and certain other
finance subsidiaries, and are guaranteed by certain
Material Subsidiaries. Xerox is required to guarantee
the obligations of the Overseas Borrowers. At
December 31, 2003, Xerox is the only borrower
under the 2003 Credit Facility.
Under the terms of certain of our outstanding pub-
lic bond indentures, the amount of obligations under
the 2003 Credit Facility that can be (1) secured by
assets (the “Restricted Assets”) of (a) Xerox and
(b) our non-financing subsidiaries that have a consoli-
dated net worth of at least $100, without (2) triggering
a requirement to also secure those indentures, is limit-
ed to the excess of (x) 20 percent of our consolidated
net worth (as defined in the public bond indentures)
over (y) the outstanding amount of certain other debt
that is secured by the Restricted Assets. Accordingly,
the amount of 2003 Credit Facility debt secured by the
Restricted Assets will vary from time to time with
changes in our consolidated net worth. The amount of
security provided under this formula accrues ratably
to the benefit of both the term loan and revolving
loans under the 2003 Credit Facility.
The term loan and the revolving loans bear
interest at LIBOR plus a spread that varies between
1.75 percent and 3.00 percent (or, at our election, at
the base rate plus a spread that varies between
0.75 percent and 2.00 percent) depending on the then-
current Leverage Ratio under the 2003 Credit Facility.
The interest rate on the debt as of December 31, 2003
was 3.42 percent.
The 2003 Credit Facility contains affirmative and
negative covenants, as well as financial maintenance
covenants. Certain of the more significant covenants
under the 2003 Credit Facility are summarized below
(this summary is not complete and is in all respects
subject to the actual provisions of the 2003 Credit
Facility; the covenant levels indicated below are those
that are applicable for the period ending December 31,
2003 and thereafter):
(a) Limitations on the following will apply at all times
under the 2003 Credit Facility:
Minimum consolidated net worth of not less
than $3.0 billion (as defined in the 2003 Credit
Facility, net worth includes the preferred securities
issued by us as well as the deconsolidated trusts);
Maximum leverage ratio (a quarterly test that
is calculated as total adjusted debt divided by
EBITDA) ranging from 2.0 to 2.3; and
Creation and existence of liens, and certain
fundamental changes to corporate structure and
nature of business, including mergers.
(b) Limitations on the following will apply only until
such time that Xerox’s senior unsecured debt is
rated at least BBB- by S&P and Baa3 by Moody’s (the
“Ratings Condition”), and thereafter do not apply:
Minimum EBITDA (a quarterly test that is
based on rolling four quarters) ranging from $1.1
to $1.3 billion; for this purpose, “EBITDA” (earn-
ings before interest, taxes, depreciation, amortiza-
tion as well as certain non-recurring items, as
defined) generally means EBITDA, excluding inter-
est and financing income to the extent included in
EBITDA as consolidated net income; and
Maximum capital expenditures (an annual
test) of $405 during fiscal year 2003, and thereafter
an amount per fiscal year equal to $330 plus any
unused amount carried over from any prior fiscal
year; additional capital expenditures can be made
utilizing certain amounts that are otherwise avail-
able to make restricted payments and invest-
ments; for this purpose, “capital expenditures”
generally means the amounts included on our
statement of cash flows as “additions to land,
buildings and equipment,” plus any capital lease
obligations incurred.