Xerox 2004 Annual Report Download - page 65

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63
At December 31, 2004 and 2003, we had outstand-
ing cross-currency interest rate swap agreements with
aggregate notional amounts of $597 and $696, respec-
tively. The net asset fair values at December 31, 2004
and 2003 were $44 and $4, respectively. Of the
outstanding agreements at December 31, 2004, the
Japanese yen was the largest single currency hedged
and accounted for over 98 percent of our agreements.
Cash Flow Hedges: As of December 31, 2004, cross
currency swaps with a notional amount of $589 were
used to hedge the currency exposure for interest
payments and principal on half of our Japanese yen
denominated debt of $1.3 billion. In addition, forward
currency contracts were used to hedge the currency
exposure for interest payments on the remaining debt.
These combined strategies converted the hedged
cash flows to U.S. dollar denominated payments and
qualified for cash flow hedge accounting.
During 2004 and 2003, certain forward contracts
were used to hedge the interest payments on Euro
denominated debt of $377. The derivatives were
designated and accounted for as cash flow hedges.
No amount of ineffectiveness was recorded in the
Consolidated Statements of Income during 2004 or
2003 for our designated cash flow hedges and all
components of each derivative’s gain or loss was
included in the assessment of hedge effectiveness.
Accumulated Other Comprehensive Loss
(“AOCL”): During 2004, a $16 after-tax increase in the
fair value of cash flow hedges was recorded in AOCL
while an after-tax amount of $(14) was transferred to
earnings as a result of scheduled payments and receipts
on our cash flow hedges. This resulted in an ending
gain position relating to the cash flow hedges in AOCL
of $3 as of December 31, 2004. 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 our 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.
Fair Value of Financial Instruments: The estimated
fair values of our financial instruments at December
31, 2004 and 2003 follow:
2004 2003
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents $ 3,218 $3,218 $2,477 $2,477
Accounts receivable, net 2,076 2,076 2,159 2,159
Short-term debt 3,074 3,093 4,236 4,281
Long-term debt 7,050 7,442 6,930 7,177
Liabilities to trusts issuing preferred securities 717 738 1,809 2,407
The fair value amounts for Cash and cash
equivalents and Accounts receivable, net approximate
carrying 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
carrying value represents the theoretical net premium
or discount we would pay or receive to retire all debt
at such date.