Xerox 2007 Annual Report Download - page 109

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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, 2007 was as follows (in millions):
2007 2006 2005
Cash (payments) proceeds on notes payable, net ...................................... $ (143) $ (19) $ 4
Net cash proceeds from issuance of long-term debt(1) ................................... 2,254 1,502 50
Cash payments on long-term debt .................................................... (297) (207) (1,241)
Net cash proceeds (payments) on other debt ........................................ $1,814 $1,276 $(1,187)
(1) Includes payment of debt issuance costs.
Note 12 – Liability to Subsidiary Trust Issuing Preferred Securities
The Liability to Subsidiary Trust Issuing Preferred
Securities included in our Consolidated Balance Sheets of
$632 and $624 as of December 31, 2007 and 2006,
respectively, reflect our obligations to Xerox Capital Trust I
(“Trust I”) as a result of their loans to us from proceeds
related to their issuance of preferred securities. This
subsidiary is not consolidated in our financial statements
because we are not the primary beneficiary of the trust.
In 1997, 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 2007, 2006 and 2005. We have guaranteed, 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 do
not qualify for hedge accounting but are effective as
economic hedges of our inventory purchases and currency
exposure. These derivative contracts are accounted for using
the mark-to-market accounting method and accordingly are
exposed to some level of volatility. The level of volatility will
varywiththetypeandamountofderivativehedges
outstanding, as well as fluctuations in the currency and
interest rate market during the period. The related cash flow
impacts of all of our derivative activities are reflected as cash
flows from operating activities.
Xerox Annual Report 2007 107