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Notes to the Consolidated
Financial Statements
(in millions, except per share data and
unless otherwise indicated)
Secured Borrowings
We have an agreement in the U.S. (the “Loan Agreement”) under
which General Electric Capital Corporation, a subsidiary of GE,
provides secured funding for our customer leasing activities in the
U.S. The maximum potential level of borrowing under this
agreement is a function of the size of the portfolio of finance
receivables generated by us that meet GE’s funding requirements
and cannot exceed $5 billion.
Under this agreement, lease originations to be funded by GE are
transferred to a wholly-owned consolidated subsidiary. The funds
received under this agreement are recorded as secured borrowings
and together with the associated lease receivables are included in
our Consolidated Balance Sheet. We and GE intended for the
transfers of the lease contracts to be “true sales at law” and that
the wholly-owned consolidated subsidiary be bankruptcy remote
and have received opinions to that effect from outside legal
counsel. As a result, the transferred receivables are not available to
satisfy any of our other obligations. The final funding date for the
U.S. facility is December 2010. There have been no new borrowings
under the Loan Agreement since December 2005.
As of December 31, 2008 and 2007, net encumbered finance
receivables were $104 and $377, respectively, and secured debt
associated with those receivables was $56 and $275, respectively.
Accounts Receivable Sales Arrangements
We have a facility in Europe that enables us to sell, on an on-going
basis, certain accounts receivables without recourse to a third-
party. During 2008 and 2007, we sold approximately $717 and
$326, respectively, of accounts receivables under this facility. Fees
associated with these sales were $4 and $2, respectively. Of the
amounts sold, $178 and $170 remained uncollected by the third-
party as of December 31, 2008 and 2007, respectively. In the
fourth quarter of 2008, we also sold an additional $43 of accounts
receivable in Europe without recourse under a separate one-time
factoring arrangement.
Note 5 – Inventories and Equipment on Operating
Leases, Net
Inventories at December 31, 2008 and 2007 were as follows:
2008 2007
Finished goods $1,044 $1,099
Work-in-process 80 70
Raw materials 108 136
Total Inventories $1,232 $1,305
The transfer of equipment from our inventories to equipment
subject to an operating lease is presented in our Consolidated
Statements of Cash Flows in the operating activities section as a
non-cash adjustment. Equipment on operating leases and similar
arrangements consists of our equipment rented to customers and
depreciated to estimated salvage value at the end of the lease term.
We recorded $115, $66 and $69 in inventory write-down charges for
the years ended December 31, 2008, 2007 and 2006, respectively.
Equipment on operating leases and the related accumulated
depreciation at December 31, 2008 and 2007 were as follows:
2008 2007
Equipment on operating leases $1,507 $1,435
Less: Accumulated depreciation (913) (848)
Equipment on operating leases, net $ 594 $ 587
Depreciable lives generally vary from three to four years consistent
with our planned and historical usage of the equipment subject to
operating leases. Depreciation and obsolescence expense for
equipment on operating leases was $298, $269 and $230 for the
years ended December 31, 2008, 2007 and 2006, respectively. Our
equipment operating lease terms vary, generally from 12 to 36
months. Scheduled minimum future rental revenues on operating
leases with original terms of one year or longer are:
2009 2010 2011 2012 2013 Thereafter
$380 $282 $183 $86 $38 $21
Total contingent rentals on operating leases, consisting principally
of usage charges in excess of minimum contracted amounts, for
the years ended December 31, 2008, 2007 and 2006 amounted to
$117, $117 and $112, respectively.
Note 6 – Land, Buildings and Equipment, Net
Land, buildings and equipment, net at December 31, 2008 and
2007 were as follows:
Estimated
Useful Lives
(Years) 2008 2007
Land $ 45 $ 48
Buildings and building equipment 25 to 50 1,156 1,208
Leasehold improvements Varies 372 371
Plant machinery 5 to 12 1,597 1,710
Office furniture and equipment 3 to 15 973 998
Other 4 to 20 100 86
Construction in progress — 95 88
Subtotal 4,338 4,509
Less: Accumulated depreciation (2,919) (2,922)
Land, buildings and equipment,
net $ 1,419 $ 1,587
62 Xerox 2008 Annual Report