Xerox 2005 Annual Report Download - page 71

Xerox Corporation
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Note 8 – Goodwill and Intangible Assets, Net
Goodwill:
The carrying amount of goodwill was $1,671, $1,848 and $1,722, for the three years ended December 31, 2005. The only changes
in goodwill for each of the three years ended December 31, 2005 related to foreign currency translation adjustments of $(177), $132
and $158, respectively, as well as a $6 other charge that was incurred in the Other segment in 2004. The following table presents the
carrying amount of goodwill, by operating segment, as of December 31, 2005 and 2004, respectively (in millions):
Production Office DMO Other Total
Balance as of December 31, 2005 $745 $807 $ – $119 $1,671
Balance as of December 31, 2004 848 881 – 119 1,848
Intangible Assets, Net:
Intangible assets primarily relate to the Office operating segment. Intangible assets were comprised of the following as of December 31,
2005 and 2004 (in millions):
As of December 31, 2005 As of December 31, 2004
Gross Gross
Weighted Average Carrying Accumulated Net Carrying Accumulated Net
Amortization Period Amount Amortization Amount Amount Amortization Amount
Installed customer base 17 years $ 226 $ 72 $154 $ 218 $ 58 $ 160
Distribution network 25 years 123 30 93 123 25 98
Existing technology 7years 105 89 16 105 74 31
Licensed technology 7 years 28 5 23 28 1 27
Trademarks 7 years 23 20 3 23 15 8
$505 $216 $289 $497 $173 $324
Amortization expense related to intangible assets was $42, $38, and $36 for the years ended December 31, 2005, 2004 and 2003,
respectively, and is expected to approximate $40 in 2006 and approximate $22 annually from 2007 through 2010. Amortization
expense is primarily recorded in Other expenses, net, with the exception of amortization expense associated with licensed technology,
which is recorded in Cost of sales and Cost of service, outsourcing and rentals, as appropriate.
In 2005, 2004 and 2003, we received dividends of $38, $50
and $20, respectively, which were reflected as a reduction in our
investment. Additionally, we have a technology agreement with
Fuji Xerox whereby we receive royalty payments for their use of
our Xerox brand trademark, as well as rights to access their
patent portfolio in exchange for access to our patent portfolio.
In 2005, 2004 and 2003, we earned royalty revenues under
this agreement of $123, $119 and $110, respectively, which
are included in Service, outsourcing and rental revenues in the
Consolidated Statements of Income. 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 arrangements.
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, 2005 were as follows (in millions):
2005 2004 2003
Sales $ 163 $ 166 $ 149
Purchases $ 1,517 $ 1,135 $ 871
In addition to the payments described above, in 2005, 2004
and 2003, we paid Fuji Xerox $28, $27 and $33, respectively,
and Fuji Xerox paid us $9 in each of the three years ended
2005, respectively, for unique research and development.
As of December 31, 2005 and 2004, amounts due to Fuji Xerox
were $157 and $155, respectively.
Xerox Annual Report 2005