Xerox 2013 Annual Report Download - page 114

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Terminated Swaps: During the period from 2004 to 2011, we early terminated 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 2013, 2012
and 2011, the amortization of these fair value adjustments reduced interest expense by $42, $49 and $53,
respectively, and we expect to record a net decrease in interest expense of $100 in future years through 2018.
Foreign Exchange Risk Management
As a global company, we are exposed to foreign currency exchange rate fluctuations in the normal course of our
business. As a part of our foreign exchange risk management strategy, we use derivative instruments - primarily
forward contracts and purchased option contracts - to hedge the following foreign currency exposures, thereby
reducing volatility of earnings or 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, 2013, we had outstanding forward
exchange and purchased option contracts with gross notional values of $2,917, which is typical of the amounts that
are normally outstanding at any point during the year. Approximately 78% of these contracts mature within three
months, 8% in three to six months and 14% in six to twelve months.
The following is a summary of the primary hedging positions and corresponding fair values as of December 31, 2013:
Currencies Hedged (Buy/Sell)
Gross
Notional
Value
Fair Value
Asset
(Liability)(1)
Euro/U.K. Pound Sterling $639 $1
Japanese Yen/U.S. Dollar 588 (27)
U.S. Dollar/Euro 495 (8)
Japanese Yen/Euro 416 (32)
U.K. Pound Sterling/Euro 190 2
Canadian Dollar/Euro 94 (1)
Euro/U.S. Dollar 60 1
Mexican Peso/U.S. Dollar 57 —
U.S. Dollar/Japanese Yen 45 —
Indian Rupee/U.S. Dollar 42 1
Philippine Peso/U.S. Dollar 41 (1)
Swiss Franc/Euro 38 —
Euro/Danish Krone 31 —
U.S. Dollar/Canadian Dollar 21 —
All Other 160 —
Total Foreign Exchange Hedging $2,917 $(64)
________________
(1) Represents the net receivable (payable) amount included in the Consolidated Balance Sheet at December 31, 2013.
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. The net
liability fair value of these contracts was $50 and $48 as of December 31, 2013 and December 31, 2012,
respectively.
97