Xerox 2011 Annual Report Download - page 50

Management’s Discussion
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However, our determination above is based on the assumption that only
the cash held outside the U.S. would be repatriated as a result of an
unanticipated or unique domestic need. It does not assume repatriation
of the entire amount of indefinitely reinvested earnings of our foreign
subsidiaries. As disclosed in Note 15 – Income and Other Taxes in our
Consolidated Financial Statements, we have not estimated the potential
tax consequences associated with the repatriation of the entire amount
of our foreign earnings indefinitely reinvested outside the U.S. We do not
believe it is practical to calculate the potential tax impact, as there is a
significant amount of uncertainty with respect to determining the amount
of foreign tax credits as well as any additional local withholding tax and
other indirect tax consequences that may arise from the distribution of
these earnings. In addition, because such earnings have been indefinitely
reinvested in our foreign operations, repatriation would require liquidation
of those investments or a recapitalization of our foreign subsidiaries, the
impacts and effects of which are not readily determinable.
Loan Covenants and Compliance
At December 31, 2011, we were in full compliance with the covenants
and other provisions of our Credit Facility and Senior Notes. We have
the right to prepay outstanding loans or to terminate the Credit Facility
without penalty. Failure to comply with material provisions or covenants of
the Credit Facility and Senior Notes could have a material adverse effect
on our liquidity and operations and our ability to continue to fund our
customers’ purchase of Xerox equipment.
Refer to Note 11 – Debt in the Consolidated Financial Statements for
additional information regarding debt arrangements.
Contractual Cash Obligations and Other Commercial Commitments and Contingencies
At December 31, 2011, we had the following contractual cash obligations and other commercial commitments and contingencies:
(in millions) 2012 2013 2014 2015 2016 Thereafter
Total debt, including capital lease obligations(1) $ 1,541 $ 425 $ 1,078 $ 1,252 $ 951 $ 3,202
Minimum operating lease commitments(2) 637 503 296 168 83 103
Defined benefit pension plans 560 — — — — —
Retiree health payments 80 83 82 81 80 372
Estimated Purchase Commitments:
Flextronics(3) 599 — — — — —
Fuji Xerox(4) 2,180 — — — — —
IM service contracts(5) 180 141 95 45 12 —
Other(6) 22 5 2 — — —
Total $ 5,799 $ 1,157 $ 1,553 $ 1,546 $ 1,126 $ 3,677
(1) Refer to Note 11 – Debt in the Consolidated Financial Statements for additional information and interest payments related to total debt. Amounts above include principal portion
only and $100 million of Commercial Paper at December 31, 2011.
(2) Refer to Note 6 – Land, Buildings and Equipment, Net in the Consolidated Financial Statements for additional information related to minimum operating lease commitments.
(3) Flextronics: We outsource certain manufacturing activities to Flextronics. The amount included in the table reflects our estimate of purchases over the next year and is not a
contractual commitment. Actual purchases from Flextronics were approximately $600 million in 2011 and 2010.
(4) Fuji Xerox: The amount included in the table reflects our estimate of purchases over the next year and is not a contractual commitment.
(5) We have an information management contract with HP Enterprise Services (“HPES”) which runs through 2014. Services provided under this contract include support for our European
mainframe system processing, as well as workplace, service desk and voice and data network management. We can terminate this contract for convenience without paying a
termination fee by providing 60 days prior notice. We also have several agreements for similar services with other third-party providers. These contracts have various terms through
2016 and include desktop services, voice and data network-related services, mainframe application, development and support and mid-range applications processing and support.
(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.
PensionandOtherPost-retirementBenetPlans
We sponsor defined benefit pension plans and retiree health plans that
require periodic cash contributions. Our 2011 cash contributions for these
plans were $426 million for our defined benefit pension plans and $73
million for our retiree health plans. We also elected to make a contribution
of 16.6 million shares of our common stock, with an aggregate value of
approximately $130 million, to our U.S. defined benefit pension plan for
salaried employees in order to meet our planned level of funding for 2011.
Accordingly, total contributions to our defined benefit pension plans were
$556 million in 2011.
In 2012 , based on current actuarial calculations, we expect to make
contributions of approximately $560 million to our worldwide defined
benefit pension plans and approximately $80 million to our retiree health
benefit plans. As in 2011, contributions to our defined benefit pension
plans may include shares of our common stock in lieu of cash, depending
on our cash requirements during the year. Despite favorable returns on our
defined benefit pension plan assets, contributions in 2012 are expected to
be level with 2011, primarily due to a significant decrease in the discount
rate. Contributions in subsequent years will depend on a number of
factors, including the investment performance of plan assets and discount
rates as well as potential legislative and plan changes. We currently expect
contributions to our defined benefit pension plans to decline in years
subsequent to 2012.