Xerox 2005 Annual Report Download - page 45

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Xerox Corporation
37
Other Expenses, Net: Other expenses, net, for the three years ended December 31, 2005 consisted of the following:
Year Ended December 31, Amount Change
(in millions) 2005 2004 2003 2005 2004
Non-financing interest expense $ 231 $363 $522 $(132) $(159)
Interest income (138) (75) (65) (63) (10)
(Gain) loss on sales of businesses and assets (97) (61) 13 (36) (74)
Currency losses, net 5 73 11 (68) 62
Amortization of intangible assets 38 37 36 1 1
Legal matters 115 9 242 106 (233)
Minorities’ interests in earnings of subsidiaries 15 8 6 7 2
All other expenses, net 55 15 111 40 (96)
$ 224 $369 $876 $(145) $(507)
Currency Gains and Losses: Currency gains and losses primarily
result from the mark-to-market of foreign exchange contracts utilized
to hedge foreign currency-denominated assets and liabilities, the
re-measurement of foreign currency-denominated assets and
liabilities and the mark-to-market impact of hedges of anticipated
transactions, primarily future inventory purchases, for which we
do not generally apply cash flow hedge accounting treatment.
In 2005, 2004 and 2003, currency losses totaled $5 million,
$73 million and $11 million, respectively. The decrease in 2005
from 2004 was primarily due to the strengthening of the U.S.
and Canadian Dollars against the Euroand the Yen in 2005, as
compared to the weakening U.S. Dollar in 2004, and decreased
costs of hedging foreign currency-denominated assets and
liabilities due to lower spot/forward premiums in 2005. The
increase in currency losses in 2004 from 2003 was primarily
due to the weakening U.S. Dollar in 2004 and increased costs
of hedging foreign currency-denominated assets and liabilities
due to higher spot/forwardpremiums in 2004.
Legal Matters: In 2005, legal matters costs consisted of
the following:
•$102 million, including $13 million for interest expense,
related to the MPI arbitration panel ruling (refer to Note 16 –
Contingencies in the Consolidated Financial Statements).
•$13 million related to other legal matters, primarily reflecting
charges for probable losses on cases that have not yet
been resolved.
In 2004, legal matters costs consist of expenses associated
with the resolution of legal and regulatory matters, none
of which was individually material, partially offset by the
adjustment of an estimate associated with a previously
recorded litigation accrual.
Non-financing Interest Expense: In 2005, non-financing interest
expense decreased due to lower average debt balances as a
result of scheduled term debt repayments and medium-term
note redemptions, as well as the full-year effect of the December
2004 Capital Trust II liability conversion. 2004 non-financing
interest expense was $159 million lower than in 2003, primarily
due to lower average debt balances as a result of the full-year
effect of the June 2003 recapitalization and other scheduled
term debt repayments.
Interest Income: Interest income is derived primarily from our
invested cash and cash equivalent balances and interest resulting
from periodic tax settlements. In 2005, interest income increased
primarily due to:
•A$57 million increase associated with the previously
disclosed settlement of the 1996-1998 IRS audit (refer
to Note 15 – Income and Other Taxes in the Consolidated
Financial Statements).
•A$23 million increase primarily reflecting higher rates of
return from our money market funds.
•Partially offset by the absence of $26 million of interest
income related to a 2004 domestic tax refund.
In 2004, interest income increased primarily as a result of $26
million related to a domestic tax refund claim in 2004, partially
offset by the absence of $13 million of interest income related
to Brazilian tax credits in 2003.
(Gain) Loss on Sales of Businesses and Assets: In 2005, gain on
sales of businesses and assets primarily relate to the $93 million
gain in the first quarter on the sale of Integic. In 2004, gains on
the sale of businesses and assets primarily reflect the $38 million
pre-tax gain from the sale of our ownership interest in ScanSoft,
as well as gains totaling $14 million related to the sale of certain
excess land and buildings in Europe and Mexico. The 2003
amount primarily included losses related to the sale of Xerox
Engineering Systems subsidiaries in France and Germany, which
were partially offset by a gain on the sale of our investment in
Xerox South Africa.
Xerox Annual Report 2005