Xerox 2004 Annual Report Download - page 35

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certain of its foreign subsidiaries, including Xerox
Canada Capital Limited, Xerox Capital (Europe) plc
and other qualified foreign subsidiaries (excluding
Xerox Corporation, the “Overseas Borrowers”). The
2003 Credit Facility matures on September 30, 2008.
As of December 31, 2004, the $300 million term loan
and $15 million of letters of credit were outstanding
and there were no outstanding borrowings under
the revolving credit facility. Since inception of the
2003 Credit Facility in June 2003, there have been no
borrowings under the revolving credit facility.
The term loan and the revolving loans each bear
interest at LIBOR plus a spread that varies between
1.75 percent and 3 percent or, at our election, at a base
rate plus a spread that depends on the then-current
leverage ratio, as defined, in the 2003 Credit Facility.
This rate was 3.92 percent at December 31, 2004.
The 2003 Credit Facility contains affirmative and
negativecovenants as well as financial maintenance
covenants. Subject to certain exceptions, we cannot
pay cash dividends on our common stock during the
facility term, although wecan paycash dividends on
our preferred stock provided there is then no event of
default. In addition to other defaults customary for
facilities of this type, defaults on other debt, or bank-
ruptcy, of Xerox, or certain of our subsidiaries, and a
change in control of Xerox, would constitute events of
default. At December 31, 2004, we were in compliance
with the covenants of the 2003 Credit Facility and we
expect to remain in compliance for at least the next
twelvemonths.
Other Financing Activity
Financing Business: We currently fund our customer
financing activity through third-party funding arrange-
ments, cash generated from operations, cash on hand,
capital markets offerings and securitizations. In the
United States, Canada, the U.K., and France, we are
currently funding a significant portion of our customer
financing activity through secured borrowing arrange-
ments with GE and Merrill Lynch. In The Netherlands,
Spain and Belgium, we utilize a consolidated joint ven-
ture relationship with De Lage Landen International
BV (“DLL”), whereby the joint venture, funded by
DLL’s parent, became our primary equipment financing
partner for new lease originations in those countries.
We also have arrangements in Italy, the Nordic coun-
tries, Brazil and Mexico in which third party financial
institutions originate lease contracts directly with our
customers. In these transactions, we sell and transfer
title to the equipment to these financial institutions
and generally have no continuing ownership rights in
the equipment subsequent to its sale.
Several of the more significant customer financing
arrangements are discussed below. See Note 3 to the
Consolidated Financial Statements for a more detailed
discussion of our customer financing arrangements.
Secured Borrowing Arrangements: In October
2002, we finalized an eight-year Loan Agreement with
General Electric Capital Corporation (“GECC”). The
Loan Agreement provides for a series of monthly
secured loans up to $5 billion outstanding at any time
($2.5 billion outstanding at December 31, 2004). The
$5 billion limit may be increased to $8 billion subject
to agreement between the parties. Additionally, the
agreement contains mutually agreed renewal options
for successive two-year periods. The Loan Agreement,
as well as separate loan agreements with GE in the
U.K. and Canada that have similar terms, incorporates
the financial maintenance covenants contained in
the 2003 Credit Facility and contains other affirmative
and negative covenants.
Under the Loan Agreement, we expect GECC
to fund a significant portion of new U.S. lease origina-
tions at over-collateralization rates, which vary over
time, but are expected to approximate 10 percent at
the inception of each funding. The secured loans are
subject to interest rates calculated at each monthly
loan occurrence at yield rates consistent with average
rates for similar market based transactions. The
funds received under this agreement are recorded as
secured borrowings and the associated finance receiv-
ables are included in our Consolidated Balance Sheet.
GECC’s commitment to fund under this agreement is
not subject to our credit ratings.
France Secured Borrowings: In July 2003, we secu-
ritized receivables of $443 million, previously funded
under a 364-day warehouse financing facility estab-
lished in December 2002 with subsidiaries of Merrill
Lynch, with a three-year public secured financing
arrangement. In addition, we established a new ware-
house financing facility to fund future lease origina-
tions in France. This facility can provide funding for
new lease originations up to ?350 million (U.S. $477
million), outstanding at any time, and balances may
be securitized through a similar public offering within
two years.
The Netherlands Secured Borrowings: Beginning
in the second half of 2002, we received a series of fund-
ings through our consolidated joint venture with DLL
from DLL’s parent, De Lage Landen Ireland Company.
The fundings are secured by our lease receivables in
The Netherlands which were transferred to the DLL
joint venture. In addition, the DLL joint venture also
became our primary equipment financing provider in
the Netherlands for all new lease originations. In the
fourth quarter of 2003, the DLL joint venture expanded
its operations to include Spain and Belgium.