Xerox 2005 Annual Report Download - page 50

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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Liquidity: We manage our worldwide liquidity using internal cash
management practices, which are subject to (1) the statutes,
regulations and practices of each of the local jurisdictions in
which we operate, (2) the legal requirements of the agreements
to which we are a party and (3) the policies and cooperation of
the financial institutions we utilize to maintain and provide cash
management services.
With $1.6 billion of cash, cash equivalents and short-term
investments, as of December 31, 2005, borrowing capacity
under our 2003 Credit Facility of approximately $700 million
and funding available through our secured funding programs,
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 the
financial markets, both of which are subject to general economic,
financial, competitive, legislative, regulatory and other market
factors that are beyond our control. As of December 31, 2005,
we had an active shelf registration statement with $1.75 billion of
capacity that enables us to access the market on an opportunistic
basis and offer both debt and equity securities.
Credit Facility: The 2003 Credit Facility consists of a $300 million
term loan and a $700 million revolving credit facility,which
includes a $200 million sub-facility for letters of credit. Xerox
Corporation is the only borrower of the term loan. The revolving
credit facility is available, without sub-limit, to Xerox Corporation
and 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, 2005, 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% and 3.00% 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 6.22% at December 31, 2005.
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.
In addition to other defaults customary for facilities of this type,
defaults on other debt, or bankruptcy, of Xerox, or certain of our
subsidiaries, and a change in control of Xerox, would constitute
events of default. At December 31, 2005, 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.
Share Repurchase Program: In October 2005, the Board of
Directors authorized the repurchase of up to $500 million of the
Company’s common stock during a period of up to one year. In
addition, during January 2006, the Board of Directors authorized
an additional repurchase of $500 million of the Company’s
common stock to also occur during a period of up to one year.
Refer to Note 18 – Common Stock in the Consolidated Financial
Statements for further information.
Other Financing Activity
Financing Business: We currently fund our customer financing
activity through third-party funding arrangements, cash generated
from operations, cash on hand, capital markets offerings and
secured loans. In the United States, Canada, the Netherlands,
the U.K. and France, we arecurrently funding a significant portion
of our customer financing activity through secured borrowing
arrangements with GE, De Lage Landen Bank (“DLL”) and Merrill
Lynch. At the end of the thirdquarter of 2005, we repaid $120
million of secured debt through a transaction with our DLL Joint
Venture to purchase DLL’s parent’s 51% ownership interest in
the Belgium and Spain leasing operations, which werepreviously
sold to the joint venture in the fourth quarter of 2003. In connec-
tion with the purchase, the secured borrowings to DLL’s parent in
these operations were repaid and the related finance receivables
are no longer encumbered. Other than the repayment of the
secured debt, the effects from this transaction were immaterial.
In October 2005, we renegotiated our Loan Agreement with
GE, resulting in a reduction in applicable interest rates and the
elimination of the monthly borrowing requirement. The interest
rate reduction is applicable to existing and new loans. Additionally,
in October 2005, we finalized renegotiation of our Loan
Agreements with Merrill Lynch in France, resulting in an increase
in the size of the facility from €350 million to €420 million
($414 million to $497 million), lower applicable interest rates
and an extension for an additional 2 years at our option from
the current expiration date of July 2007. Refer to Note 4 to the
Consolidated Financial Statements for a more detailed discussion
of our customer financing arrangements.
Xerox Annual Report 2005