Xerox 2009 Annual Report Download - page 69

Download and view the complete annual report

Please find page 69 of the 2009 Xerox annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 96

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96

67Xerox 2009 Annual Report
Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
Forecasted Purchases and Sales in Foreign Currency
We generally utilize forward foreign exchange contracts and purchased
option contracts to hedge these anticipated transactions. These
contracts generally mature in 12 months or less. A portion of these
contracts are designated as cash-flow hedges.
Summary of Foreign Exchange Hedging Positions
At December 31, 2009, we had outstanding forward exchange and
purchased option contracts with gross notional values of $2,093, which
is reflective of the amounts that are normally outstanding at any point
during the year.
The following is a summary of the primary hedging positions and
corresponding fair values held as of December 31, 2009:
Gross Fair Value
Notional Asset
Currency Hedged (Buy/Sell) Value (Liability)(1)
U.K. Pound Sterling/Euro $ 668 $ 6
Euro/U.S. Dollar 113 (2)
U.S. Dollar/Euro 225 3
Swedish Kronor/Euro 134 1
Swiss Franc/Euro 189 —
Japanese Yen/U.S. Dollar 237 (7)
Japanese Yen/Euro 186 1
Euro/U.K. Pound Sterling 24 —
U.S. Dollar/Canadian Dollar 20 —
All Other 297 (1)
Total Foreign Exchange Hedging $ 2,093 $ 1
(1) Represents the net receivable (payable) amount included in the Consolidated Balance
Sheet at December 31, 2009.
Foreign Currency Cash Flow Hedges
We designate a portion of our foreign currency derivative contracts
as cash flow hedges of our foreign currency-denominated inventory
purchases and sales. The changes in fair value for these contracts were
reported in Accumulated other comprehensive loss and reclassified
to Cost of sales and revenue in the period or periods during which the
related inventory was sold to a third party. No amount of ineffectiveness
was recorded in the Consolidated Statements of Income for these
designated cash flow hedges and all components of each derivative’s
gain or loss was included in the assessment of hedge effectiveness. As of
December 31, 2009, the net asset fair value of these contracts was $1.
Cash Flow Hedges
As of December 31, 2008, a pay fixed/receive variable interest rate
swap that was designated and accounted for as a cash flow hedge,
had a notional amount of $150 and a net liability fair value of $2.
The swap was structured to hedge the LIBOR interest rate of the floating
Senior Notes due 2009 by converting it from a variable rate instrument
to a fixed rate instrument. The swap matured in conjunction with the
repayment of the Senior Notes in December 2009. No ineffective
portion was recorded to earnings during 2009, 2008 or 2007 and
all components of the derivative gain or loss was included in the
assessment of hedged effectiveness.
Terminated Swaps
During the period from 2004 to 2009, we early-terminated several
interest rate swaps which had been designated as fair value hedges
of certain debt instruments. These terminated interest rate swaps
had an aggregate notional value of $4.0 billion. The associated net
fair value adjustments to the debt instruments are being amortized
to interest expense over the remaining term of the related notes. In
2009, 2008 and 2007, the amortization of these fair value adjustments
reduced interest expense by $17, $12 and $9, respectively, and we
expect to record a net decrease in interest expense of $133 in future
years through 2027.
Foreign Exchange Risk Management
We are a global company that is exposed to foreign currency exchange
rate fluctuations in the normal course of its business. As a part of
our foreign exchange risk management strategy, we use derivative
instruments, primarily forward contracts, to hedge certain foreign
currency exposures, thereby reducing volatility of earnings or protecting
fair values of assets and liabilities.
Foreign Currency-Denominated Assets and Liabilities
We generally utilize forward foreign exchange contracts to hedge
these exposures. Changes in the value of these currency derivatives
are recorded in earnings together with the offsetting foreign exchange
gains and losses on the underlying assets and liabilities.