Xerox 2006 Annual Report Download - page 56

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
Note 1 – Summary of Significant Accounting Policies
References herein to “we,” “us,” “our,” the
“Company,” and Xerox refer to Xerox Corporation and its
consolidated subsidiaries unless the context specifically
requires otherwise.
Description of Business and Basis of Presentation:
We are a technology and services enterprise and a leader
in the global document market, developing,
manufacturing, marketing, servicing and financing a
complete range of document equipment, solutions and
services. Certain reclassifications have been made to prior
year financial information to conform to the current year
presentation.
Basis of Consolidation: The Consolidated Financial
Statements include the accounts of Xerox Corporation
and all of our controlled subsidiary companies. All
significant intercompany accounts and transactions have
been eliminated. Investments in business entities in which
we do not have control, but we have the ability to exercise
significant influence over operating and financial policies
(generally 20% to 50% ownership), are accounted for
using the equity method of accounting. Upon the sale of
stock of a subsidiary, we recognize a gain or loss in our
Consolidated Statements of Income equal to our
proportionate share of the corresponding increase or
decrease in that subsidiary’s equity. Operating results of
acquired businesses are included in the Consolidated
Statements of Income from the date of acquisition.
We consolidate variable interest entities if we are
deemed to be the primary beneficiary of the entity.
Operating results for variable interest entities in which we
are determined to be the primary beneficiary are included
in the Consolidated Statements of Income from the date
such determination is made.
For convenience and ease of reference, we refer to
the financial statement caption “Income from Continuing
Operations before Income Taxes, Equity Income,
Discontinued Operations and Cumulative Effect of
Change in Accounting Principle” as “pre-tax income,”
throughout the notes to the Consolidated Financial
Statements.
Use of Estimates: The preparation of our
Consolidated Financial Statements, in accordance with
accounting principles generally accepted in the United
States of America, requires that we make estimates and
assumptions that affect the reported amounts of assets and
liabilities, as well as the disclosure of contingent assets
and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the
reporting period. Significant estimates and assumptions
are used for, but not limited to: (i) allocation of revenues
and fair values in leases and other multiple element
arrangements; (ii) accounting for residual values;
(iii) economic lives of leased assets; (iv) allowance for
doubtful accounts; (v) inventory valuation;
(vi) restructuring and related charges; (vii) asset
impairments; (viii) depreciable lives of assets; (ix) useful
lives of intangible assets; (x) pension and post-retirement
benefit plans; (xi) income tax reserves and valuation
allowances and (xii) contingency and litigation reserves.
Future events and their effects cannot be predicted with
certainty; accordingly, our accounting estimates require
the exercise of judgment. The accounting estimates used
in the preparation of our Consolidated Financial
Statements will change as new events occur, as more
experience is acquired, as additional information is
obtained and as our operating environment changes.
Actual results could differ from those estimates.
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