Debt

Short-term borrowings were as follows:



	December 31,
	2015		2014
Commercial paper	$	—	$	150
Notes Payable	3		1
Current maturities of long-term debt	982		1,276
Total Short-term Debt	$	985	$	1,427

We classify our debt based on the contractual maturity dates of the underlying debt instruments or as of the earliest put date available to the debt holders. We defer costs associated with debt issuance over the applicable term, or to the first put date in the case of convertible debt or debt with a put feature. These costs are amortized as interest expense in our Consolidated Statements of Income.

Long-term debt was as follows:



			December 31,
	Weighted Average Interest Rates at December 31, 2015⁽²⁾		2015			2014
Xerox Corporation
Senior Notes due 2015	4.29	%	$	—		$	1,000
Senior Notes due 2016	6.48	%	700			700
Notes due 2016	7.20	%	250			250
Senior Notes due 2017	6.83	%	500			500
Senior Notes due 2017	2.98	%	500			500
Notes due 2018	0.57	%	1			1
Senior Notes due 2018	6.37	%	1,000			1,000
Senior Notes due 2019	2.77	%	500			500
Senior Notes due 2019	5.66	%	650			650
Senior Notes due 2020	2.81	%	400			400
Senior Notes due 2020	3.70	%	400			—
Senior Notes due 2020	2.77	%	400			—
Senior Notes due 2021	5.39	%	1,062			1,062
Senior Notes due 2024	3.84	%	300			300
Senior Notes due 2035	4.84	%	250			—
Senior Notes due 2039	6.78	%	350			350
Subtotal - Xerox Corporation			$	7,263		$	7,213
Subsidiary Companies
Senior Notes due 2015	4.25	%	—			250
Capital lease obligations	4.18	%	98			105
Other	0.19	%	1			3
Subtotal - Subsidiary Companies			$	99		$	358

Principal debt balance			7,362			7,571
Unamortized discount			(52		)	(54		)
Fair value adjustments⁽¹⁾
Terminated swaps			47			68
Current swaps			7			5
Less: current maturities			(982		)	(1,276		)
Total Long-term Debt			$	6,382		$	6,314

____________

(1)

Fair value adjustments include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value adjustment.


(2)	Represents weighted average effective interest rate which includes the effect of discounts and premiums on issued debt.

Scheduled principal payments due on our long-term debt for the next five years and thereafter are as follows:



2016^{(1) (2)}		2017		2018		2019		2020		Thereafter		Total
$	980	$	1,027	$	1,020	$	1,161	$	1,207	$	1,967	$	7,362

_____________


(1)	Quarterly long-term debt maturities from continuing operations for 2016 are $709, $257, $7 and $7 for the first, second, third and fourth quarters, respectively.


(2)	Excludes fair value adjustments of $2.

Senior Notes

We issued the following Senior Notes in 2015:


•	In August 2015 we issued $400 of 3.50% Senior Notes due 2020 (the "2020 Senior Notes") at 99.113% of par, resulting in aggregate net proceeds of approximately $396.


•	In March 2015, we issued $400 of 2.75% Senior Notes due 2020 (the "2020 Senior Notes") at 99.879% of par and $250 of 4.80% Senior Notes due 2035 (the "2035 Senior Notes") at 99.428% of par, resulting in aggregate net proceeds of approximately $648.

Interest on these Senior Notes is payable semi-annually. Debt issuance costs of $9 were paid and deferred in connection with the issuances of these Senior Notes. The proceeds were used for general corporate purposes, which included repayment of a portion of our outstanding borrowings.

In 2015 we also repaid the following Senior Notes due in 2015 - $1,000 of 4.29% Senior Notes and $250 of 4.25% Senior Notes.

Commercial Paper

We have a private placement commercial paper (CP) program in the U.S. under which we may issue CP up to a maximum amount of $2.0 billion outstanding at any time. Aggregate CP and Credit Facility borrowings may not exceed $2.0 billion outstanding at any time. The maturities of the CP Notes will vary, but may not exceed 390 days from the date of issue. The CP Notes are sold at a discount from par or, alternatively, sold at par and bear interest at market rates. CP outstanding at December 31, 2015 and 2014, was $0 and $150, respectively.

Credit Facility

We have a $2.0 billion unsecured revolving Credit Facility with a group of lenders, which matures in 2019. The Credit Facility contains a $300 letter of credit sub-facility, and also includes an accordion feature that would allow us to increase (from time to time, with willing lenders) the overall size of the facility up to an aggregate amount not to exceed $2.75 billion.

The Credit Facility provides a backstop to our $2.0 billion CP program. Proceeds from any borrowings under the Credit Facility can be used to provide working capital for the Company and its subsidiaries and for general corporate purposes. At December 31, 2015 we had no outstanding borrowings or letters of credit under the Credit Facility.

The Credit Facility is available, without sublimit, to certain of our qualifying subsidiaries. Our obligations under the Credit Facility are unsecured and are not currently guaranteed by any of our subsidiaries. Any domestic subsidiary that guarantees more than $100 of Xerox Corporation debt must also guaranty our obligations under the Credit Facility. In the event that any of our subsidiaries borrows under the Credit Facility, its borrowings thereunder would be guaranteed by us.

Borrowings under the Credit Facility bear interest at our choice, at either (a) a Base Rate as defined in our Credit Facility agreement, plus a spread that varies between 0.00% and 0.45% depending on our credit rating at the time of borrowing, or (b) LIBOR plus an all-in spread that varies between 0.90% and 1.45% depending on our credit rating at the time of borrowing. Based on our credit rating as of December 31, 2015, the applicable all-in spreads for the Base Rate and LIBOR borrowing were 0.10% and 1.10%, respectively.

An annual facility fee is payable to each lender in the Credit Facility at a rate that varies between 0.10% and 0.30% depending on our credit rating. Based on our credit rating as of December 31, 2015, the applicable rate is 0.15%.

The Credit Facility contains various conditions to borrowing and affirmative, negative and financial maintenance covenants. Certain of the more significant covenants are summarized below:


(a)	Maximum leverage ratio (a quarterly test that is calculated as principal debt divided by consolidated EBITDA, as defined) of 3.75x.


(b)	Minimum interest coverage ratio (a quarterly test that is calculated as consolidated EBITDA divided by consolidated interest expense) may not be less than 3.00x.


(c)	Limitations on (i) liens of Xerox and certain of our subsidiaries securing debt, (ii) certain fundamental changes to corporate structure, (iii) changes in nature of business and (iv) limitations on debt incurred by certain subsidiaries.

The Credit Facility also contains various events of default, the occurrence of which could result in termination of the lenders' commitments to lend and the acceleration of all our obligations under the Credit Facility. These events of default include, without limitation: (i) payment defaults, (ii) breaches of covenants under the Credit Facility (certain of which breaches do not have any grace period), (iii) cross-defaults and acceleration to certain of our other obligations and (iv) a change of control of Xerox.

Interest

Interest paid on our short-term and long-term debt amounted to $365, $400 and $435 for the years ended December 31, 2015, 2014 and 2013, respectively.

Interest expense and interest income was as follows:



	Year Ended December 31,
	2015		2014		2013
Interest expense⁽¹⁾	$	353	$	377	$	403
Interest income⁽²⁾	354		397		494

___________


(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. In 2015 we revised the methodology for calculating the estimated cost of funds to be based on the interest cost associated with actual borrowings determined to be in support of the leasing business. Prior to 2015, the estimated cost of funds was based on our overall corporate cost of borrowing adjusted to reflect a rate that would be paid by a typical BBB rated leasing company. The impact of the change in methodology was not material to the current or prior periods. The estimated level of debt continues to be based on an assumed 7 to 1 leverage ratio of debt/equity as compared to our average finance receivable balance during the applicable period.