Debt

Short-term borrowings were as follows:



	December 31,
	2014			2013
Commercial paper	$	150		$	—
Notes Payable	1			5
Current maturities of long-term debt	1,307			1,112
Discontinued operations - capital leases ⁽¹⁾	(31		)	—
Total Short-term Debt	$	1,427		$	1,117

____________


(1)	Represents current capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 - Divestitures for additional information regarding this pending sale.

We classify our debt based on the contractual maturity dates of the underlying debt instruments or as of the earliest put date available to the debt holders. We defer costs associated with debt issuance over the applicable term, or to the first put date in the case of convertible debt or debt with a put feature. These costs are amortized as interest expense in our Consolidated Statements of Income.

Long-term debt was as follows:



			December 31,
	Weighted Average Interest Rates at December 31, 2014⁽²⁾		2014			2013
Xerox Corporation
Convertible Notes due 2014	—	%	$	—		$	9
Senior Notes due 2014	—	%	—			750
Floating Rate Notes due 2014	—	%	—			300
Senior Notes due 2015	4.29	%	1,000			1,000
Notes due 2016	7.20	%	250			250
Senior Notes due 2016	6.48	%	700			700
Senior Notes due 2017	6.83	%	500			500
Senior Notes due 2017	2.98	%	500			500
Notes due 2018	0.57	%	1			1
Senior Notes due 2018	6.37	%	1,000			1,000
Senior Notes due 2019	2.77	%	500			500
Senior Notes due 2019	5.66	%	650			650
Senior Notes due 2020	2.81	%	400			—
Senior Notes due 2021	5.39	%	1,062			1,062
Senior Notes due 2024	3.84	%	300			—
Senior Notes due 2039	6.78	%	350			350
Subtotal - Xerox Corporation			$	7,213		$	7,572
Subsidiary Companies
Senior Notes due 2015	4.25	%	250			250
Borrowings secured by other assets	3.85	%	180			146
Other	1.20	%	3			6
Subtotal - Subsidiary Companies			$	433		$	402

Principal debt balance			7,646			7,974
Unamortized discount			(54		)	(58		)
Fair value adjustments⁽¹⁾
Terminated swaps			68			100
Current swaps			5			—
Less: current maturities			(1,307		)	(1,112		)
Discontinued Operations ⁽³⁾			(44		)	—
Total Long-term Debt			$	6,314		$	6,904

____________

(1)

Fair value adjustments include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value adjustment.


(2)	Represents weighted average effective interest rate which includes the effect of discounts and premiums on issued debt.


(3)	Represents long-term capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 - Divestitures for additional information regarding this pending sale.

Scheduled principal payments due on our long-term debt for the next five years and thereafter are as follows:



	2015⁽¹⁾		2016		2017		2018		2019		Thereafter		Total
Continuing operations	$	1,276	$	974	$	1,023	$	1,017	$	1,158	$	2,123	$	7,571
Discontinued operations ⁽²⁾	31		24		14		6		—		—		75
Total Long-term Principal Payments	$	1,307	$	998	$	1,037	$	1,023	$	1,158	$	2,123	$	7,646

_____________


(1)	Quarterly long-term debt maturities from continuing operations for 2015 are $1,007, $256, $7 and $6 for the first, second, third and fourth quarters, respectively.


(2)	Represents payments on capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 - Divestitures for additional information regarding this pending sale.

Commercial Paper

We have a private placement commercial paper (CP) program in the U.S. under which we may issue CP up to a maximum amount of $2.0 billion outstanding at any time. Aggregate CP and Credit Facility borrowings may not exceed $2.0 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. CP outstanding at December 31, 2014 and 2013, was $150 and $0, respectively.

Credit Facility

In 2014, we entered into an Amended and Restated Credit Agreement that extended the maturity date of our $2.0 billion unsecured revolving Credit Facility to 2019 from 2016. The amendment also included modest improvements in pricing and minor changes in the composition of the group of lenders. The amended and restated Credit Facility contains a $300 letter of credit sub-facility, and also includes an accordion feature that would allow us to increase (from time to time, with willing lenders) the overall size of the facility up to an aggregate amount not to exceed $2.75 billion. We also have the right to request a one year extension on each of the first and second anniversaries of the amendment date.

We deferred $7 of debt issuance costs in connection with this amendment, which included approximately $4 of unamortized deferred debt issue costs associated with the previous Credit Facility. The write-off of debt issuance costs associated with lenders that reduced their participation in the amended and restated Credit Facility was not material.

The Credit Facility provides a backstop to our $2.0 billion CP program. Proceeds from any borrowings under the Credit Facility can be used to provide working capital for the Company and its subsidiaries and for general corporate purposes.

At December 31, 2014 we had no outstanding borrowings or letters of credit under the Credit Facility.

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 a spread that varies between 0.00% and 0.45% depending on our credit rating at the time of borrowing, or (b) LIBOR plus an all-in spread that varies between 0.90% and 1.45% depending on our credit rating at the time of borrowing. Based on our credit rating as of December 31, 2014, the applicable all-in spreads for the Base Rate and LIBOR borrowing were 0.10% and 1.10%, respectively.

An annual facility fee is payable to each lender in the Credit Facility at a rate that varies between 0.10% and 0.30% depending on our credit rating. Based on our credit rating as of December 31, 2014, the applicable rate is 0.15%.

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.

Interest

Interest paid on our short-term and long-term debt amounted to $400, $435 and $464 for the years ended December 31, 2014, 2013 and 2012, respectively.

Interest expense and interest income was as follows:



	Year Ended December 31,
	2014		2013		2012
Interest expense^{(1) (3)}	$	377	$	403	$	427
Interest income⁽²⁾	397		494		610

___________


(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.


(3)	Excludes interest on capital lease obligations related to our ITO business which is held for sale and being reported as a discontinued operation at December 31, 2014. These obligations are expected to be assumed by the purchaser of the ITO business. Refer to Note 4 - Divestitures for additional information regarding this pending sale.

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.

Net (Payments) Proceeds on Debt

Net (payments) proceeds on debt as shown on the Consolidated Statements of Cash Flows was as follows:



	Year Ended December 31,
	2014			2013			2012
Net proceeds (payments) on short-term debt	$	145		$	5		$	(108	)
Proceeds from issuance of long-term debt	808			617			1,116
Payments on long-term debt	(1,128		)	(1,056		)	(1,116		)
Net Payments on Other Debt	$	(175	)	$	(434	)	$	(108	)