Xerox 2007 Annual Report Download - page 108

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
any grace period), (iii) cross-defaults and acceleration to
certain of our other obligations and (iv) a change of
control of Xerox.
Senior Notes Offerings
In May 2007, we issued $1,100 of Senior Notes due
2012 (the “2012 Senior Notes”) at 99.613 percent of par,
resulting in net proceeds of $1,088. The 2012 Senior
Notes accrue interest at the rate of 5.50% per annum,
payable semiannually, and as a result of the discount,
have a weighted average effective interest rate of 5.59%.
In conjunction with the issuance of the 2012 Senior Notes,
debt issuance costs of $7 were deferred. The 2012 Senior
Notes are subordinated to our secured indebtedness and
rank equally with our other existing senior unsecured
indebtedness.
Zero Coupon Bonds
In July and August 2007, we issued $300 and $100,
respectively, of zero coupon bonds in private placement
transactions. The bonds mature in 2022 and the final
amounts due at maturity are $706 and $233, respectively.
The bonds are putable annually at the option of the bond
holder after two years.
Other Debt Activity
Bank Credit Facilities: In July 2007, our subsidiary in
the Netherlands entered into an unsecured €120 million
(U.S. $161) bank loan due July 1, 2008. The proceeds were
used to repay secured borrowings to DLL in connection
with our purchase of DLL’s interest in our lease financing
joint venture (Refer to Note 4-Receivables, Net for further
information). As of December 31, 2007, approximately
€120 million (U.S. $177) was outstanding under this loan.
In October 2007, we entered into a €330 million (U.S.
$466) bridge facility due March 31, 2008, in order to repay
maturing secured debt in France with Merrill Lynch. As of
December 31, 2007, approximately €55 million (U.S. $81)
was outstanding under this facility.
Guarantees: At December 31, 2007, we have
guaranteed $37 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, 2007, $55 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 $552, $512 and $555
for the years ended December 31, 2007, 2006 and
2005, respectively.
Interest expense and interest income for the three
years ended December 31, 2007 was as follows (in
millions):
2007 2006 2005
Interest expense(1) ............. $579 $544 $ 557
Interest income(2) .............. 877 909 1,013
(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. 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
are reviewed at the end of each period. 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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