Xerox 2004 Annual Report Download - page 61

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The term loan and the revolving loans bear inter-
est at LIBOR plus a spread that varies between 1.75
percent and 3.00 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.
The interest rate on the debt as of December 31, 2004,
was 3.92 percent.
The 2003 Credit Facility contains affirmative and
negative covenants as well as financial maintenance
covenants. Subject to certain exceptions, we cannot
pay cash dividends on our common stock during the
facility term, although we can pay cash dividends on
our preferred stock, provided there is then no event of
default. Among defaults customary for facilities of this
type, defaults on our other debt, bankruptcy of certain
of our legal entities, or a change in control of Xerox
Corporation, would all 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
twelve months.
2011 Senior Notes: In August 2004, we issued $500
aggregate principal amount of Senior Notes due 2011,
at par value, and received net proceeds of approximately
$492. In September 2004, weissued an additional $250
aggregate principal amount Senior Notes due 2011,
at 104.25percent of par, resulting in net proceeds of
approximately $258. These notes form a single series
of debt. Interest on the Senior Notes accrues at the
annual rate of 6.875percent and is payable semiannu-
ally and, as a result of the premium wereceived on
the second issuance of Senior Notes, have a weighted
average effective interest rate of 6.6 percent. In
conjunction with the issuance of the Senior Notes,
debt issuance costs of $11 were deferred.
2010 and 2013 Senior Notes: In June 2003, we
issued $700 aggregate principal amount of Senior
Notes due 2010 and $550 aggregate principal amount
of Senior Notes due 2013. Interest on the Senior Notes
due 2010 and 2013 accrues at the rate of 7.125 percent
and 7.625 percent, respectively, per annum and is
payable semiannually on June 15 and December 15.
In conjunction with the issuance of the 2010 and 2013
Senior Notes, debt issuance costs of $32 were deferred.
The senior notes also contain negative covenants
(but no financial maintenance covenants) similar to
those contained in the 2003 Credit Facility. However,
they generally provide us with more flexibility than
the 2003 Credit Facility covenants, except that
payment of cash dividends on the Series C Mandatory
Convertible Preferred Stock is subject to the conditions
that there is then no default under the senior notes,
that the fixed charge coverage ratio (as defined) is
greater than 2.25to 1.0, and that the amount of the
cash dividend does not exceed the then amount avail-
able under the restricted payments basket (as
defined). The Senior Notes are guaranteed by our
wholly-owned subsidiaries, Intelligent Electronics,
Inc. and Xerox International Joint Marketing, Inc.
Guarantees: At December 31, 2004, we have guaran-
teed $206 of indebtedness of our foreign subsidiaries.
This debt is included in our Consolidated Balance
Sheet as of such date.
Interest: Interest paid by us on our short-term debt,
long-term debt and liabilities to subsidiary trusts issu-
ing preferred securities amounted to $710, $867 and
$903 for the years ended December 31, 2004, 2003 and
2002, respectively.
Interest expense and interest income consisted of:
Year Ended December 31, 2004 2003 2002
Interest expense (1) $708 $ 884 $ 896
Interest income (2) (1,009) (1,062) (1,077)
(1) Includes Equipment financing interest of $345, $362 and $401 for the
years ended December 31, 2004, 2003 and 2002, respectively, as well as
non-financing interest expense of $363, $522 and $495 for the years
ended December 31, 2004, 2003 and 2002, respectively, that is included in
Other expenses, net in the Consolidated Statements of Income.
(2) Includes Finance income, as well as other interest income that is included
in Other expenses, net in the Consolidated Statements of Income.
Equipment financing interest is determined based
on a combination of actual interest expense incurred on
financing debt, as well as an estimated cost of funds,
applied against the estimated level of debt required to
support our financed receivables. The estimate is based
on an assumed ratio of debt as compared to our finance
receivables. This ratio ranges from 80-90 percent of our
average finance receivables. This methodology has
been consistently applied for all periods presented.
Asummary of the Net cash payments on debt as
shown on the Consolidated Statements of Cash Flows
for the three years ended December 31, 2004 follows:
2004 2003 2002
Cash (payments) proceeds
on notes payable, net $ (6) $ 22 $ (33)
Net cash proceeds from
issuance of long-term debt (1) 974 1,580 1,053
Cash payments on long-term debt (2,390) (5,646) (5,639)
$(1,422) $(4,044) $(4,619)
(1) Includes payment of debt issuance costs.