Xerox 2003 Annual Report Download - page 66

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Gross Fair Value
Notional Asset/
Currency Hedged (Buy/Sell) Value (Liability)
Euro/Pound Sterling $1,117 $ 5
Yen/US Dollar 837 16
US Dollar/Pound Sterling 482 (14)
Yen/Euro 251 (5)
Kronor/Pound Sterling 213 –
Pound Sterling/Euro 173 (1)
Euro/US Dollar 149 8
Euro/Yen 132 3
All Other 878 (12)
Total $4,232 $ –
Accumulated Other Comprehensive Loss (“AOCL”):
During 2003, an $8 after-tax increase in the fair value
of cash flow hedges was recorded in AOCL while an
after-tax amount of $(6) was transferred to earnings as
a result of scheduled payments and receipts on the
cash flow hedges. This resulted in an ending gain
position relating to the cash flow hedges in AOCL of
$1 as of December 31, 2003. During 2002, less than
$1 of an after-tax decrease in the fair value of cash
flow hedges was recorded in AOCL while an after-tax
amount of $10 was transferred to earnings as a result
of scheduled payments and receipts on the cash flow
hedges. This resulted in an ending loss position relat-
ing to the cash flow hedges in AOCL of $1 as of
December 31, 2002.
Cash Flow Hedges: During 2003, we entered into two
strategies to hedge the currency exposure of
Japanese yen denominated debt of $936 and $281. We
used cross currency swaps with notional amounts of
$453 and $136, respectively, to hedge the currency
exposure for interest payments and principal on half
of such debt and used forward currency contracts to
hedge the currency exposure for interest payments on
the remaining debt. These strategies converted the
hedged cash flows to U.S. dollar denominated pay-
ments and qualified for cash flow hedge accounting
under SFAS No. 133.
During 2003 and 2002, certain forward contracts
were used to hedge the interest payments on Euro
denominated debt of $377. In addition, certain forward
contracts were used to hedge Euro denominated inter-
est payments on other debt. The interest payments on
such debt were designated and accounted for as cash
flow hedges. Accordingly, the change in value of these
derivatives was included in AOCL and was not materi-
al for all periods presented. No amount of ineffective-
ness was recorded to the Consolidated Statements of
Income during 2003 or 2002 for our designated cash
flow hedges and all components of each derivatives
gain or loss are included in the assessment of hedge
effectiveness.
Fair Value of Financial Instruments: The estimated fair
values of our financial instruments at December 31,
2003 and 2002 follow:
2003 2002
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash
equivalents $2,477 $2,477 $2,887 $2,887
Accounts receivable,
net 2,159 2,159 2,072 2,072
Short-term debt 4,236 4,281 4,377 3,837
Liabilities to trusts
issuing preferred
securities 1,809 2,407 1,793 1,610
Long-term debt 6,930 7,177 9,794 9,268
The fair value amounts for Cash and cash equiva-
lents and Accounts receivable, net approximate carry-
ing amounts due to the short maturities of these
instruments. The fair value of Short and Long-term
debt, as well as Liabilities to subsidiary trusts issuing
preferred securities, was estimated based on quoted
market prices for publicly traded securities or on the
current rates offered to us for debt of similar maturi-
ties. The difference between the fair value and the car-
rying value represents the theoretical net premium or
discount we would pay or receive to retire all debt at
such date.
Note 12 – Employee Benefit Plans
We sponsor numerous pension and other post-retire-
ment benefit plans, primarily retiree health, in our U.S.
and international operations. December 31 is the
measurement date for our domestic, Canadian, and
Mexican plans and September 30 is the measurement
date for our other foreign plans. Information regarding
our benefit plans is presented below: