Xerox 2005 Annual Report Download - page 52

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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Contractual Cash Obligations and Other Commercial Commitments and Contingencies: At December 31, 2005, we had the following
contractual cash obligations and other commercial commitments and contingencies (in millions):
Year 1 Years 2-3 Years 4-5
2006 2007 2008 2009 2010 Thereafter
Long-term debt, including capital lease obligations(1) $ 1,139 $ 1,582 $ 978 $ 989 $ 727 $ 1,863
Minimum operating lease commitments(2) 197 165 124 102 90 197
Liabilities to subsidiary trusts issuing preferred securities(3) 98 – – – – 626
Purchase Commitments
Flextronics(4) 734–––––
EDS Contracts(5) 299 290 282 138 – –
Other(6) 39 34 31 1 – –
Total Contractual cash obligations $2,506 $2,071 $1,415 $1,230 $817 $2,686
(1) Refer to Note 11 to our Consolidated Financial Statements for interest payments by us as well as for additional information related to long-term debt (amounts above include
principal portion only).
(2) Refer to Note 6 to our Consolidated Financial Statements for additional information related to minimum operating lease commitments.
(3) Refer to Note 12 to our Consolidated Financial Statements for interest payments by us as well as for additional information related to liabilities to subsidiary trusts issuing
preferred securities (amounts above include principal portion only).
(4) Flextronics: In 2001, we outsourced certain manufacturing activities to Flextronics under a five-year agreement expiring on November 30, 2006, which we expect to extend for
at least an additional three-year period in accordance with existing contractual terms.
(5) EDS Contracts: We have an information management contract with Electronic Data Systems Corp. (“EDS”) to provide services to us for global mainframe system processing,
application maintenance and support, desktop services and helpdesk support, voice and data network management, and server management through June 30, 2009. There
are no minimum payments required under the contract. After July 1, 2006, we can terminate the current contract for convenience with six months’ notice, as defined in the
contract, with no termination fee and with payment to EDS for costs incurred as of the termination date. Should we terminate the contract for convenience, we have an option
to purchase the assets placed in service under the EDS contract.
(6) Other Purchase Commitments: We enter into other purchase commitments with vendors in the ordinary course of business. Our policy with respect to all purchase
commitments is to record losses, if any, when they are probable and reasonably estimable. We currently do not have, nor do we anticipate, material loss contracts.
tax-qualified plans in order to make them 100 percent funded on
acurrent liability basis under the ERISA funding rules. Our other
post-retirement benefit plans arenon-funded and are almost entirely
related to domestic operations. Cash contributions are made
each year to cover medical claims costs incurred in that year.
Fuji Xerox: We had product purchases from Fuji Xerox totaling
$1.5 billion, $1.1 billion and $871 million in 2005, 2004 and
2003, respectively. Our purchase commitments with Fuji Xerox
are in the normal course of business and typically have a lead
time of three months. We anticipate that we will purchase
approximately $1.9 billion of products from Fuji Xerox in 2006.
Related party transactions with Fuji Xerox are discussed in
Note 7 to the Consolidated Financial Statements.
Brazil Tax and Labor Contingencies: At December 31, 2005, our
Brazilian operations wereinvolved in various litigation matters and
have received or been levied with numerous governmental assess-
ments related to indirect and other taxes as well as disputes
associated with former employees and contract labor. The total
amounts related to these unreserved contingencies, inclusive of
any related interest, were approximately $900 million. The tax
matters, which comprise a significant portion of the total contingen-
cies, principally relate to claims for taxes on the internal transfer
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 2005 cash fundings for these
plans were $388 million for pensions and $112 million for other
post-retirement plans. Our anticipated cash fundings for 2006
are $106 million for pensions and $130 million for other
post-retirement plans. Cash contribution requirements for our
domestic tax-qualified pension plans aregoverned by the
Employment Retirement Income Security Act (“ERISA”) and the
Internal Revenue Code. Cash contribution requirements for our
international plans aresubject to the applicable regulations in
each country.The expected 2006 pension contributions do not
include contributions to the domestic tax-qualified plans because
these plans have already exceeded the ERISA minimum funding
requirements for the plans’ 2005 plan year.However,once the
January 1, 2006 actuarial valuations and projected results as of
the end of the 2006 measurement year areavailable, the desir-
ability of additional contributions will be assessed. Based on these
results, we may voluntarily decide to contribute to these plans,
even though no contribution is required. In prior years, after making
this assessment, we decided to contribute $230 million and $210
million in April 2005 and April 2004, respectively, to our domestic
Xerox Annual Report 2005