Xerox 2010 Annual Report Download - page 83

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
81Xerox 2010 Annual Report
The Credit Facility also contains various events of default, the
occurrence of which could result in a termination by the lenders and the
acceleration of all our obligations under the Credit Facility. These events
of default include, without limitation: (i) payment defaults, (ii) breaches
of covenants under the Credit Facility (certain of which breaches do not
have any grace period), (iii) cross-defaults and acceleration to certain of
our other obligations and (iv) a change of control of Xerox.
Capital Market Activity
During 2010, we redeemed the following Notes prior to their
scheduled maturity:
7.625% Senior Notes due in 2013 for $550;
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6.00% Medium-term Notes due 2011 for $25;
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7.41% Medium-term Notes due 2011 for $25;
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6.50% Medium-term Notes due 2013 for $10;
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6.00% Medium-term Notes due 2014 for $25; and
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6.125% Medium-term Notes due 2014 for $25.
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We incurred a loss on extinguishment of approximately $16,
representing the call premium of approximately $7 on the Senior
Notes as well as the write-off of unamortized debt costs of $9.
Interest
Interest paid on our short-term debt, long-term debt and liability
to subsidiary trust issuing preferred securities amounted to $586,
$531 and $527 for the years ended December 31, 2010, 2009 and
2008, respectively.
Interest expense and interest income for the three years ended
December 31, 2010 was as follows:
2010 2009 2008
Interest expense(1) $ 592 $ 527 $ 567
Interest income(2) 679 734 833
(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 the estimated level of debt required to
support our net finance receivables. The estimated cost of funds is
based on our overall corporate cost of borrowing adjusted to reflect a
rate that would be paid by a typical BBB rated leasing company. The
estimated level of debt is based on an assumed 7 to 1 leverage ratio
of debt/equity as compared to our average finance receivable balance
during the applicable period.
Scheduled principal payments due on our long-term debt for the next
five years and thereafter are as follows:
2011 2012 2013 2014 2015 Thereafter Total
$1,070(1) $1,126 $412 $771 $1,251 $3,450 $8,080
(1)
Quarterly total debt maturities for 2011 are $11, $9, $1,041 and $9 for the first,
second, third and fourth quarters, respectively.
Commercial Paper
In October 2010, Xerox’s Board of Directors authorized the company
to issue commercial paper (“CP”). Aggregate CP and Credit Facility
borrowings may not exceed $2 billion outstanding at any time. Under
the company’s current private placement CP program, we may issue
CP up to a maximum amount of $1.0 billion outstanding at any time.
The maturities of the CP Notes will vary, but may not exceed 390 days
from the date of issue. The CP Notes are sold at a discount from par or,
alternatively, sold at par and bear interest at market rates.
Credit Facility
The Credit Facility is a $2.0 billion unsecured revolving credit facility
including a $300 letter of credit subfacility. At December 31, 2010 we
had no outstanding borrowings or letters of credit. Approximately $1.8
billion, or 90% of the Credit Facility, has a maturity date of April 30,
2013. The remaining portion of the Credit Facility has a maturity date
of April 30, 2012.
The Credit Facility is available, without sublimit, to certain of our
qualifying subsidiaries and includes provisions that would allow us
to increase the overall size of the Credit Facility up to an aggregate
amount of $2.5 billion. Our obligations under the Credit Facility are
unsecured and are not currently guaranteed by any of our subsidiaries.
Any domestic subsidiary that guarantees more than $100 of Xerox
Corporation debt must also guaranty our obligations under the Credit
Facility. In the event that any of our subsidiaries borrows under the
Credit Facility, its borrowings thereunder would be guaranteed by us.
Borrowings under the Credit Facility bear interest at our choice, at either
(a) a Base Rate as defined in our Credit Facility agreement, plus an all-in
spread that varies between 1.5% and 3.5% depending on our credit
rating at the time of borrowing, or (b) LIBOR plus an all-in spread that
varies between 2.5% and 4.5% depending on our credit rating at the
time of borrowing. Based on our credit rating as of December 31, 2010,
the applicable all-in spreads for the Base Rate and LIBOR borrowing were
2.5% and 3.5%, respectively.
The Credit Facility contains various conditions to borrowing and
affirmative, negative and financial maintenance covenants. Certain of
the more significant covenants are summarized below:
(a) Maximum leverage ratio (a quarterly test that is calculated as
principal debt divided by consolidated EBITDA, as defined) of 3.75x
(b) Minimum interest coverage ratio (a quarterly test that is calculated
as consolidated EBITDA divided by consolidated interest expense)
may not be less than 3.00x
(c) Limitations on (i) liens of Xerox and certain of our subsidiaries
securing debt, (ii) certain fundamental changes to corporate
structure, (iii) changes in nature of business and (iv) limitations on
debt incurred by certain subsidiaries