Xerox 2005 Annual Report Download - page 74

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
66
Note 10 – Supplementary Financial
Information
The components of other current assets and other current
liabilities at December 31, 2005 and 2004 were as follows
(in millions):
2005 2004
Other current assets
Deferred taxes $ 290 $ 289
Restricted cash 270 370
Prepaid expenses 133 142
Financial derivative instruments 28 125
Other 311 256
Total Other current assets $ 1,032 $ 1,182
Other current liabilities
Income taxes payable $ 84 $ 183
Other taxes payable 199 234
Interest payable 102 113
Restructuring reserves 212 93
Financial derivative instruments 12 46
Product warranties 20 22
Liability to Xerox Capital LLC 98 –
Other 625 618
Total Other current liabilities $ 1,352 $ 1,309
The components of other long-term assets and other long-
term liabilities at December 31, 2005 and 2004 were as follows
(in millions):
2005 2004
Other long-term assets
Prepaid pension costs $ 829 $ 891
Net investment in discontinued operations 420 440
Internal use software, net 198 255
Restricted cash 176 160
Financial derivative instruments – 19
Debt issuance costs, net 52 64
Other 246 244
Total Other long-term assets $ 1,921 $ 2,073
Other long-term liabilities
Deferred and other tax liabilities $ 771 $ 862
Minorities’ interests in equity of subsidiaries 90 80
Financial derivative instruments 45 43
Product warranties 1 1
Other 388 329
Total Other long-term liabilities $ 1,295 $ 1,315
Net Investment in Discontinued Operations: Our net investment in
discontinued operations is primarily related to the disengagement
from our former insurance holding company, Talegen Holdings, Inc.
(“Talegen”), and consists of our net investment in Ridge Reinsurance
Limited (“Ridge Re”) and a performance-based instrument relating
to the 1997 sale of The Resolution Group (“TRG”).
Ridge Re: Weprovide aggregate excess of loss reinsurance
coverage (the Reinsurance Agreement) to one of the former
Talegen units, TRG, through Ridge Re, a wholly owned subsidiary.
The coverage limit for this remaining Reinsurance Agreement is
$578. We have guaranteed that Ridge Re will meet all of its financial
obligations under the remaining Reinsurance Agreement. Ridge
Re maintains an investment portfolio in a trust that is required to
provide security with respect to aggregate excess of loss rein-
surance obligations under the remaining Reinsurance Agreement.
At December 31, 2005 and 2004, the balance of the investments
in the trust, consisting of U.S. government, government agency
and high-quality corporate bonds, was $504 and $544, respectively.
Our remaining net investment in Ridge Re was $83 and $82 at
December 31, 2005 and 2004, respectively. Based on Ridge Re’s
current projections of investment returns and reinsurance payment
obligations, we expect to fully recover our remaining investment.
The projected reinsurance payments are based on actuarial
estimates. Wecontinue to evaluate potential strategies to transfer
our obligations under the remaining Reinsurance Agreement,
as well as the investments in the trust, to another insurance
company in an effort to completely exit from this business.
Performance-Based Instrument: In connection with the 1997 sale
of TRG, we received a $462 performance-based instrument as
partial consideration. Cash distributions arepaid on the instrument,
based on 72.5% of TRG’savailable cash flow as defined in the
sale agreement. For the years ended December 31, 2005 and
2004, we received cash distributions of $20 and $22, respectively.
The recovery of this instrument is dependent upon the sufficiency
of TRG’s available cash flows. Such cash flows are supported by
TRG’s ultimate parent via a subscription agreement whereby the
parent has agreed to purchase from TRG an established number
of shares of this instrument each year through 2017. Based on
current cash flow projections, we expect to fully recover the $345
remaining balance of this instrument.
Liability to Xerox Capital LLC: Refer to Note 12 for further
information.
Internal Use Software: Capitalized direct costs associated with
developing, purchasing or otherwise acquiring software for internal
use are amortized on a straight-line basis over the expected useful
life of the software, beginning when the software is implemented.
Useful lives of the software generally vary from 3 to 5 years.
Amortization expense, including applicable impairment charges,
was $92, $107 and $116 for the years ended December 31,
2005, 2004 and 2003, respectively.
Xerox Annual Report 2005