Xerox 2005 Annual Report Download - page 76

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
68
Credit Facility: In June 2003, we 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. This facility expires on September 30,
2008. As of December 31, 2005, the $300 term loan and $15 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. Xerox is the only
borrower of the term loan.
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. sub-
sidiaries 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
areguaranteed by certain Material Subsidiaries. At December 31,
2005, Xerox is the only borrower under the 2003 Credit Facility.
Under the terms of certain of our outstanding public 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
consolidated net worth of at least $100, without (2) triggering a
requirement to also secure those indentures, is limited to the
excess of (x) 20% 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
aspread 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. The
interest rate on the debt as of December 31, 2005 was 6.22%.
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, 2005, we werein compliance
with the covenants of the 2003 Credit Facility and we expect
to remain in compliance for at least the next twelve months.
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 flexi-
bility 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 2.25 to 1.00, and that the amount of the
cash dividend does not exceed the then amount available under
the restricted payments basket (as defined). The Senior Notes are
guaranteed by our wholly owned subsidiary Xerox International
Joint Marketing, Inc.
Debt Repayments and Maturities: During 2005, we repaid
$140 of public unsecured debt prior to its scheduled maturity
in addition to $1,020 in scheduled public debt maturities.
Guarantees: At December 31, 2005, we have guaranteed $17
of indebtedness of our foreign subsidiaries. This debt is included
in our Consolidated Balance Sheet as of such date. In addition, as
of December 31, 2005, $32 of letters of credit have been issued
in connection with insurance guarantees.
Interest: Interest paid on our short-term debt, long-term debt and
liabilities to subsidiary trusts issuing preferred securities amounted
to $555, $710 and $867 for the years ended December 31,
2005, 2004 and 2003, respectively.
Interest expense and interest income for the three years ended
December 31, 2005 was as follows (in millions):
Years Ended December 31, 2005 2004 2003
Interest expense(1) $ 557 $ 708 $ 884
Interest income(2) (1,013) (1,009) (1,062)
(1) Includes Equipment financing interest expense, as well as non-financing interest
expense 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 an
estimated cost of funds applied against an estimated level
of debt required to support our financed receivables. The
estimated cost of funds is primarily based on our secured
borrowing rates. The estimated level of debt is based on an
assumed 7 to 1 leverage ratio of debt/equity as compared
to our average finance receivables. This methodology has
been consistently applied for all periods presented.
Xerox Annual Report 2005