Xerox 2008 Annual Report Download - page 53

Notes to the Consolidated
Financial Statements
(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. We develop, manufacture, market,
service and finance a complete range of document equipment,
software, solutions and services.
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 “(Loss) Income before Income Taxes and Equity
Income” as “pre-tax loss” or “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.
The following table summarizes certain significant charges that
require management estimates:
Year Ended December 31,
2008 2007 2006
Restructuring provisions and asset
impairments $429 $ (6) $385
Amortization of intangible assets ($4 for
patents included in cost of sales) 58 46 45
Provisions for receivables 199 131 76
Provisions for obsolete and excess inventory 115 66 69
Provisions for litigation and regulatory
matters 781 (6) 89
Depreciation and obsolescence of
equipment on operating leases 298 269 230
Depreciation of buildings and equipment 257 262 277
Amortization of internal use and product
software 56 79 84
Pension benefits – net periodic benefit cost 174 235 355
Other post-retirement benefits – net
periodic benefit cost 77 102 117
Deferred tax asset valuation allowance
provisions 17 14 12
Changes in Estimates
In the ordinary course of accounting for items discussed above, we
make changes in estimates as appropriate, and as we become
aware of circumstances surrounding those estimates. Such
changes and refinements in estimation methodologies are
reflected in reported results of operations in the period in which the
changes are made and, if material, their effects are disclosed in the
Notes to the Consolidated Financial Statements.
Xerox 2008 Annual Report 51