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Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
83Xerox 2010 Annual Report
The following is a summary of our fair value hedges at December 31, 2010:
Year First Weighted
Designated Notional Net Fair Average Interest Interest
Debt Instrument as Hedge Amount Value Rate Paid Rate Received Basis Maturity
Senior Notes due 2013 2010 $ 400 $ — 4.71% 5.65% LIBOR 2013
Senior Notes due 2014 2009 450 10 6.19% 8.25% LIBOR 2014
Senior Notes due 2016 2010 100 1 3.96% 6.40% LIBOR 2016
Total Fair Value Hedges $ 950 $ 11
The following is a summary of the primary hedging positions and
corresponding fair values held as of December 31, 2010:
Gross Fair Value
Notional Asset
Currency Hedged (Buy/Sell) Value (Liability)(1)
U.K. Pound Sterling/Euro $ 217 $ (1)
Euro/U.S. Dollar 370 (3)
U.S. Dollar/Euro 585 9
Swedish Kronor/Euro 93 2
Swiss Franc/Euro 194 8
Japanese Yen/U.S. Dollar 397 8
Japanese Yen/Euro 367 11
Euro/U.K. Pound Sterling 211 1
U.K. Pound Sterling/Swiss Franc 74 (7)
Danish Krone/Euro 57 —
Mexican Peso/U.S. Dollar 52 —
All Other 351 (2)
Total Foreign Exchange Hedging $ 2,968 $ 26
(1) Represents the net receivable (payable) amount included in the Consolidated Balance
Sheet at December 31, 2010.
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, sales and expenses. 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, 2010, the net asset fair value of these contracts was $18.
Terminated Swaps
During the period from 2004 to 2010, we terminated early several
interest rate swaps that were designated as fair value hedges of certain
debt instruments. 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 2010, 2009 and 2008, the amortization
of these fair value adjustments reduced interest expense by $28, $17
and $12, respectively, and we expect to record a net decrease in interest
expense of $199 in future years through 2027.
Foreign Exchange Risk Management
We are exposed to foreign currency exchange rate fluctuations in
the normal course of business. As a part of our foreign exchange risk
management strategy, we use derivative instruments, primarily forward
contracts and purchase option contracts, to hedge the following
foreign currency exposures, thereby reducing volatility of earnings and
protecting fair values of assets and liabilities:
Foreign currency-denominated assets and liabilities
•
Forecasted purchases and sales in foreign currency
•
Summary of Foreign Exchange Hedging Positions
At December 31, 2010, we had outstanding forward exchange and
purchased option contracts with gross notional values of $2,968 which
is reflective of the amounts that are normally outstanding at any point
during the year. These contracts generally mature in 12 months or less.