Xerox 2009 Annual Report Download - page 67

65Xerox 2009 Annual Report
Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
Note 12 – Liability to Subsidiary Trust Issuing
Preferred Securities
The Liability to Subsidiary Trust Issuing Preferred Securities included in
our Consolidated Balance Sheets of $649 and $648 as of December 31,
2009 and 2008, respectively, reflects 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
2009, 2008 and 2007. We have guaranteed, on a subordinated basis,
distributions and other payments due on the Preferred Securities. The
guarantee, our obligations under the Debentures, 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.
Zero Coupon Notes
In 2009, we repaid $400 in Zero Coupon Notes. The total repayment
of $448 included accreted interest of $48. These Notes were repaid
when the holders exercised a put option to redeem the bond prior to
their scheduled maturity in 2022.
Guarantees
At December 31, 2009, we have issued guarantees of $123 on
behalf of our foreign subsidiaries. Of this amount, $13 is related
to indebtedness of our foreign subsidiaries and is included in our
Consolidated Balance Sheet as of December 31, 2009, with the
remainder primarily representing letters of credit. In addition, as
of December 31, 2009, $56 of letters of credit have been issued
in connection with insurance guarantees.
Interest
Interest paid on our short-term debt, long-term debt and liability
to subsidiary trust issuing preferred securities amounted to $531,
$527 and $552 for the years ended December 31, 2009, 2008 and
2007, respectively.
Interest expense and interest income for the three years ended
December 31, 2009 was as follows:
2009 2008 2007
Interest expense(1) $ 527 $ 567 $ 579
Interest income(2) $ 734 $ 833 $ 877
(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.
Net cash proceeds on debt other than secured borrowings as shown on
the Consolidated Statements of Cash Flows for the three years ended
December 31, 2009 was as follows:
2009 2008 2007
Cash payments on notes
payable, net $ (1,331) $ (238) $ (143)
Net cash proceeds from
issuance of long-term debt 2,702 1,883 2,254
Cash payments on
long-term debt (448) (719) (297)
Net Cash Proceeds on
Other Debt $ 923 $ 926 $ 1,814