Xerox 2006 Annual Report Download - page 82

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
Net cash payments on other debt as shown on the Consolidated Statements of Cash Flows for the three years
ended December 31, 2006 was as follows (in millions):
2006 2005 2004
Cash (payments) proceeds on notes payable, net ................................. $ (19) $ 4 $ (6)
Net cash proceeds from issuance of long-term debt(1) ............................. 1,502 50 974
Cash payments on long-term debt ............................................. (207) (1,241) (2,390)
Net cash proceeds (payments) on other debt .................................. $1,276 $(1,187) $(1,422)
(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 obligations to our subsidiaries that have issued
preferred securities. These subsidiaries are not
consolidated in our financial statements because we are
not the primary beneficiary of the trusts. As of
December 31, 2006 and 2005, the components of our
liabilities to the trusts were as follows (in millions):
2006 2005
Trust I ............................. $624 $626
Xerox Capital LLC(1) ................. — 98
Total .............................. $624 $724
(1) Classified in Other current liabilities in the
December 31, 2005 Consolidated Balance Sheet.
This liability was settled, with no gains or losses, in
February 2006 as part of the mandatory redemption
of preferred securities issued by Xerox Capital LLC.
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, was
$54 in 2006, 2005 and 2004. 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.
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 to 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. Certain of our derivatives
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