Xerox 2003 Annual Report Download - page 57

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In December 2003, STHQ Realty LLC was formed
to finance the acquisition of the Company’s headquar-
ters in Stamford, Connecticut. While the assets and lia-
bilities of this special purpose entity are included in
the Company’s Consolidated Financial Statements,
STHQ Realty LLC is a bankruptcy-remote separate
legal entity. As a result, its assets of $44 at December
31, 2003, are not available to satisfy the debts and
other obligations of the Company.
Note 7 – Investments in Affiliates,
at Equity
Investments in corporate joint ventures and other
companies in which we generally have a 20 to 50 per-
cent ownership interest at December 31, 2003 and
2002 were as follows:
2003 2002
Fuji Xerox (1) $556 $563
Investment in subsidiary trusts
issuing preferred securities 69 66
Other investments 19 66
Investments in affiliates, at equity $644 $695
(1) Fuji Xerox is headquartered in Tokyo and operates in Japan and other
areas of the Pacific Rim, Australia and New Zealand. We previously sold
half our interest in Fuji Xerox to Fuji Photo Film Co., Ltd. in March 2001.
Our investment in Fuji Xerox of $556 at December 31, 2003, differs from
our implied 25 percent interest in the underlying net assets, or $623, due
primarily to our deferral of gains resulting from sales of assets by us to
Fuji Xerox, partially offset by goodwill related to the Fuji Xerox investment
established at the time we acquired our remaining 20 percent of Xerox
Limited from The Rank Group (plc). Such gains would only be realizable if
Fuji Xerox sold a portion of the assets we previously sold to it or if we
were to sell a portion of our ownership interest in Fuji Xerox.
Our equity in net income of our unconsolidated
affiliates for the three years ended December 31, 2003
was as follows:
2003 2002 2001
Fuji Xerox $41 $37 $47
Other investments 17 17 6
Total $58 $54 $53
Equity in net income of Fuji Xerox is affected by
certain adjustments to reflect the deferral of profit
associated with intercompany sales. These adjustments
may result in recorded equity income that is different
than that implied by our 25 percent ownership interest.
Condensed financial data of Fuji Xerox as of and
for the three calendar years ended December 31, 2003
follow:
2003 2002 2001
Summary of Operations
Revenues $8,430 $7,539 $7,684
Costs and expenses 8,011 7,181 7,316
Income before income taxes 419 358 368
Income taxes 194 134 167
Minorities’ interests 34 36 35
Net income $ 191 $ 188 $ 166
Balance Sheet Data
Assets :
Current assets $3,273 $2,976 $2,783
Long-term assets 4,766 3,862 3,455
Total assets $8,039 $6,838 $6,238
Liabilities and
Shareholders’ Equity:
Current liabilities $2,594 $2,152 $2,242
Long-term debt 443 868 796
Other long-term liabilities 2,391 1,084 632
Minorities’ interests in equity
of subsidiaries 118 227 201
Shareholders’ equity 2,493 2,507 2,367
Total liabilities and
shareholders’ equity $8,039 $6,838 $6,238
We have a technology agreement with Fuji Xerox
whereby we receive royalty payments and rights to
access their patent portfolio in exchange for access
to our patent portfolio. In 2003, 2002 and 2001, we
earned royalty revenues under this agreement of
$110, $99 and $101, respectively. We also have
arrangements with Fuji Xerox whereby we purchase
inventory from and sell inventory to Fuji Xerox.
Pricing of the transactions under these arrangements
is based upon negotiations conducted at arm’s length.
Certain of these inventory purchases and sales are the
result of mutual research and development arrange-
ments. Our purchase commitments with Fuji Xerox
are in the normal course of business and typically
have a lead time of three months. Purchases from
and sales to Fuji Xerox for the three years ended
December 31, 2003 were as follows:
2003 2002 2001
Sales $129 $113 $132
Purchases $871 $727 $598
In addition to the payments described above,
in 2003 and 2002, we paid Fuji Xerox $33 and $20,
respectively, and in 2003 and 2002 Fuji Xerox paid us
$9 and $10, respectively, for unique research and
development.
Note 8 – Segment Reporting
Our reportable segments are consistent with how we
manage the business and view the markets we serve.
Our reportable segments are Production, Office,
Developing Markets Operations (“DMO”) and Other.
The accounting policies of all of our segments are the