Xerox 2011 Annual Report Download - page 84

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at a rate of 4.50% per annum payable semiannually. As a result of
the discount, they have a weighted average effective interest rate of
4.595%. Proceeds from the offering were used to redeem the $650
Trust I 8% Preferred Securities mentioned below and for general
corporate purposes. In conjunction with the issuance of these Senior
Notes, debt issuance costs of $7 were deferred.
Xerox Capital Trust I: In May 2011, Xerox Capital Trust I (“Trust I”), our
wholly owned subsidiary, redeemed its 8% Preferred Securities due in
2027 of $650. The redemption resulted in a pre-tax loss of $33 ($20
after-tax), representing the call premium of approximately $10 as well as
the write-off of unamortized debt costs and other liability carrying value
adjustments of approximately $23.
Interest
Interest paid on our short-term debt, long-term debt and liability to
subsidiary trust issuing preferred securities amounted to $538, $586
and $531 for the years ended December 31, 2011, 2010 and 2009,
respectively.
Interest expense and interest income were as follows:
Year Ended December 31,
2011 2010 2009
Interest expense(1) $ 478 $ 592 $ 527
Interest income(2) 653 679 734
(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 7:1 leverage ratio of debt/equity as compared to
our average finance receivable balance during the applicable period.
Net (payments) proceeds on debt as shown on the Consolidated
Statements of Cash Flows were as follows:
Year Ended December 31,
2011 2010 2009
Net proceeds (payments) on
short-term debt $ (200) $ 300 $ (61)
Net payments on Credit Facility — — (246)
Net proceeds from issuance of
long-term debt 1,000 — 2,725
Net payments on long-term debt (751) (3,357) (1,495)
Net Proceeds (Payments) on
Other Debt $ 49 $ (3,057) $ 923
The Credit Facility is available, without sublimit, to certain of our qualifying
subsidiaries. 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 0.10% and 0.75% depending on our credit
rating at the time of borrowing, or (b) LIBOR plus an all-in spread that
varies between 1.00% and 1.75% depending on our credit rating at the
time of borrowing. Based on our credit rating as of December 31, 2011,
the applicable all-in spreads for the Base Rate and LIBOR borrowing were
0.375% and 1.375%, 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.
The Credit Facility also contains various events of default, the occurrence
of which could result in termination of the lenders’ commitments to lend
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
CurrentYear
Senior Notes: In May 2011, we issued $300 of Floating Rate Senior
Notes due 2014 (the “2014 Floating Rate Notes”) and $700 of 4.50%
Senior Notes due 2021 (the “2021 Senior Notes”). The 2014 Floating
Rate Notes were issued at par and the 2021 Senior Notes were issued
at 99.246% of par, resulting in aggregate net proceeds for both notes
of approximately $995. The 2014 Floating Rate Notes accrue interest
at a rate per annum, reset quarterly, equal to three-month LIBOR plus
0.820% payable quarterly. The 2021 Senior Notes accrue interest
Notes to the Consolidated
Financial Statements
(in millions, except per-share data and where otherwise noted)