Xerox 2008 Annual Report Download - page 65

Notes to the Consolidated
Financial Statements
(in millions, except per share data and
unless otherwise indicated)
Depreciation expense and operating lease rent expense for the
three years ended December 31, 2008 were as follows:
2008 2007 2006
Depreciation expense $257 $262 $277
Operating lease rent expense(1) $252 $286 $269
(1) We lease certain land, buildings and equipment, substantially all
of which are accounted for as operating leases.
Future minimum operating lease commitments that have initial or
remaining non-cancelable lease terms in excess of one year at
December 31, 2008 were as follows:
2009 2010 2011 2012 2013 Thereafter
$223 $188 $151 $100 $84 $123
EDS Contract: We have an information management contract with
Electronic Data Systems Corp. (“EDS”) through June 30, 2009.
Services to be provided under this contract include support for
global mainframe system processing, application maintenance,
workplace and service desk, voice and data network management
and server management. In 2008, the contracts for global
mainframe system processing and workplace and service desk were
extended through December 2013 and March 2014, respectively.
In January 2009, the contract for voice and data network
management services was revised and extended through March
2014. There are no minimum payments required under this
contract. The amounts disclosed in the table reflect our estimate of
probable minimum payments for the periods shown. We can
terminate the contract for convenience with six months notice, as
defined in the contract, with no termination fee and with payment
to EDS for costs incurred as of the termination date. Should we
terminate the contract for convenience, we have an option to
purchase the assets placed in service under the EDS contract.
Payments to EDS, which are primarily recorded in selling,
administrative and general expenses, were $279, $294 and $288
for the years ended December 31, 2008, 2007 and 2006,
respectively.
In January 2009, we entered into a three year contract with
Verizon Business to provide data network transport services. There
are annual volume commitments included in the contract of $5, $7
and $8 for the three years ended December 31, 2009, 2010 and
2011. We expect to meet the minimum volume commitments
throughout the course of the contract.
Note 7 – Investments in Affiliates, at Equity
Investments in corporate joint ventures and other companies in
which we generally have a 20% to 50% ownership interest at
December 31, 2008 and 2007 were as follows:
2008 2007
Fuji Xerox $1,028 $887
All other equity investments 52 45
Investments in affiliates, at equity $1,080 $932
Fuji Xerox is headquartered in Tokyo and operates in Japan, China,
Australia, New Zealand and other areas of the Pacific Rim. Our
investment in Fuji Xerox of $1,028 at December 31, 2008, differs
from our implied 25% interest in the underlying net assets, or
$1,139, due primarily to our deferral of gains resulting from sales
of assets by us to Fuji Xerox, partially offset by goodwill related to
the Fuji Xerox investment established at the time we acquired our
remaining 20% of Xerox Limited from The Rank Group plc.
Our equity in net income of our unconsolidated affiliates for the
three years ended December 31, 2008 was as follows:
2008 2007 2006
Fuji Xerox $101 $89 $107
Other investments 12 87
Total $113 $97 $114
Equity in net income of Fuji Xerox is affected by certain
adjustments to reflect the deferral of profit associated with
intercompany sales. These adjustments may result in recorded
equity income that is different than that implied by our 25%
ownership interest. Equity income for 2008 and 2007 includes
after-tax restructuring charges of $16 and $30, respectively,
primarily reflecting employee related costs as part of Fuji Xerox’s
continued cost-reduction actions to improve its competitive
position.
Xerox 2008 Annual Report 63