Xerox 2006 Annual Report Download - page 81

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
Termination of 2003 Credit Facility
In connection with the effectiveness of the 2006
Credit Facility, we terminated the 2003 Credit Facility in
April 2006 and repaid all advances and loans outstanding
thereunder. The termination of the 2003 Credit Facility
resulted in the write-off of unamortized deferred debt
issuance costs of $13, as well as termination of the
guaranty by Xerox International Joint Marketing Inc. of
our outstanding Senior Notes due 2009, 2010, 2011, 2013
and 2016.
Senior Notes Offerings
In March 2006, we issued $700 aggregate principal
amount of Senior Notes due 2016 (“2016 Senior Notes”)
at 99.413% of par, resulting in net proceeds of $689. The
2016 Senior Notes accrue interest at the rate of 6.40% per
annum, payable semiannually, and as a result of the
discount, have a weighted average effective interest rate
of 6.481%. In conjunction with the issuance of the 2016
Senior Notes, debt issuance costs of $7 were deferred.
In August 2006, we issued $500 aggregate principal
amount of Senior Notes due 2017 (“2017 Senior Notes”)
and $150 aggregate principal amount of floating rate
Senior Notes due 2009 (“Floating 2009 Senior Notes”).
The 2017 Senior Notes aggregate principal amount was
issued at 99.392% of par, resulting in net proceeds of
$492. Interest on the 2017 Senior Notes accrues at the rate
of 6.75% per annum and is payable semiannually and, as
a result of the discount, has a weighted average effective
interest rate of 6.833%. The Floating 2009 Senior Notes
aggregate principal amount was issued at 100% of par,
resulting in net proceeds of $149. Interest on the Floating
2009 Senior Notes accrues at a rate per annum, reset
quarterly, equal to three-month LIBOR plus 0.75% and is
payable quarterly. In conjunction with the issuance of the
2017 Senior Notes and the Floating 2009 Senior Notes,
debt issuance costs of $6 were deferred.
Debt repayments and maturities: During 2006, we
repaid $24 of public unsecured debt prior to its scheduled
maturity. There were no other scheduled public debt
maturities in 2006.
Guarantees: At December 31, 2006, we have
guaranteed $31 of indebtedness of our foreign
subsidiaries. This debt is included in our Consolidated
Balance Sheet as of such date. In addition, as of
December 31, 2006, $40 of letters of credit have been
issued in connection with insurance guarantees.
Interest: Interest paid on our short-term debt, long-
term debt and liabilities to subsidiary trusts issuing
preferred securities amounted to $512, $555 and $710 for
the years ended December 31, 2006, 2005 and 2004,
respectively.
Interest expense and interest income for the three
years ended December 31, 2006 was as follows (in
millions):
Year Ended December 31,
2006 2005 2004
Interest expense(1) ......... $544 $ 557 $ 708
Interest income(2) ......... (909) (1,013) (1,009)
(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. Prior to 2006, the estimated cost of funds was
primarily based on our secured borrowing rates. As a
result of the recent reduction in our level of secured
borrowings, effective January 1, 2006 the estimated cost
of funds is based on a blended rate for term and duration
comparable to available borrowing rates for a BBB rated
company, which were reviewed at the end of each period.
This change in basis did not materially impact the
calculated amount of Equipment finance interest expense
and accordingly did not impact comparability between the
periods. 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.
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