Xerox 2005 Annual Report Download - page 77

Xerox Corporation
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Asummary of the Net cash payments on other debt as shown on
the Consolidated Statements of Cash Flows for the three years
ended December 31, 2005 follows (in millions):
2005 2004 2003
Cash proceeds (payments)
on notes payable, net $ 4 $ (6) $ 22
Net cash proceeds from
issuance of long-term debt(1) 50 974 1,580
Cash payments on
long-term debt (1,241) (2,390) (5,646)
Total Net cash payments
on other debt $(1,187) $(1,422) $(4,044)
(1) Includes payment of debt issuance costs.
Note 12 – Liability to Subsidiary Trusts
Issuing Preferred Securities
The Liability to Subsidiary Trusts Issuing Preferred Securities
included in our Consolidated Balance Sheets reflects the obliga-
tions to our subsidiaries that have issued preferred securities.
These subsidiaries are not consolidated in our financial state-
ments because we are not the primary beneficiary of the trusts.
As of December 31, 2005 and 2004, the components of our
liabilities to the trusts were as follows (in millions):
2005 2004
Trust I $626 $629
Xerox Capital LLC(1) 98 88
Total $724 $717
(1) Classified in Other current liabilities in the December 31, 2005 Consolidated
Balance Sheet.
Trust I: In 1997, Xerox Capital Trust I (“Trust I”) issued 650
thousand of 8.0% preferred securities (the “Preferred Securities”)
to investors for $644 ($650 liquidation value) and 20,103 shares
of common securities to us for $20. With the proceeds from
these securities, Trust I purchased $670 principal amount of
8.0% Junior Subordinated Debentures due 2027 of the Company
(“the Debentures”). The Debentures represent all of the assets
of Trust I. On a consolidated basis, we received net proceeds
of $637 which was net of fees and discounts of $13. Interest
expense, together with the amortization of debt issuance costs
and discounts, amounted to $54, $54 and $52 in 2005, 2004
and 2003, respectively. We have guaranteed (the “Guarantee”),
on a subordinated basis, distributions and other payments due
on the Preferred Securities. The Guarantee and our obligations
under the Debentures and in the indenture pursuant to which the
Debentures were issued and our obligations under the Amended
and Restated Declaration of Trust governing the trust, taken
together, provide a full and unconditional guarantee of amounts
due on the Preferred Securities. The Preferred Securities accrue
and pay cash distributions semiannually at a rate of 8% per year
of the stated liquidation amount of one thousand dollars per
Preferred Security. The Preferred Securities are mandatorily
redeemable upon the maturity of the Debentures on February 1,
2027, or earlier to the extent of any redemption by us of any
Debentures. The redemption price in either such case will be one
thousand dollars per share plus accrued and unpaid distributions
to the date fixed for redemption.
Xerox Capital LLC: In 1996, Xerox Capital LLC issued 2 million
deferred preferred shares for Canadian (Cdn.) $50 ($42) to
investors and all of its common shares to us. The total proceeds
of Cdn. $63 ($52) were loaned to us. The deferred preferred
shares are mandatorily redeemable on February 28, 2006 for
Cdn. $90 (equivalent to $77 at December 31, 2005). Our liability
to the subsidiary trust at December 31, 2005 of $98 includes the
redeemable amount of deferred preferred shares of $77 as well
as our liability to the deconsolidated trust of $21. This liability
has been reclassified on the December 31, 2005 Consolidated
Balance Sheet from a long-term liability to current liabilities due
to the redemption date of February 28, 2006.
Note 13 – Financial Instruments
We are exposed to market risk from changes in foreign currency
exchange rates and interest rates, which could affect operating
results, financial position and cash flows. We manage our
exposure to these market risks through our regular operating
and financing activities and, when appropriate, through the use
of derivative financial instruments. These derivative financial
instruments are utilized to hedge economic exposures as well as
reduce earnings and cash flow volatility resulting from shifts in
market rates. As permitted, certain of these derivative contracts
have been designated for hedge accounting treatment under
SFAS No. 133. However,for certain of these instruments we
do not apply hedge accounting treatment and, accordingly,our
results of operations are exposed to some level of volatility. The
level of volatility will vary with the type and amount of derivative
hedges outstanding, as well as fluctuations in the currency and
interest rate market during the period.
Xerox Annual Report 2005