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Notes to the Consolidated
Financial Statements
(in millions, except per share data and
unless otherwise indicated)
Assumptions
Weighted-average assumptions used to determine benefit
obligations at the plan measurement dates:
Pension Benefits Retiree Health
2008 2007 2006 2008 2007 2006
Discount rate 6.3% 5.9% 5.3% 6.3% 6.2% 5.8%
Rate of compensation
increase 3.9 4.1 4.1 —(1) —(1) —(1)
(1) Rate of compensation increase is not applicable to the retiree health benefits as
compensation levels do not impact earned benefits.
Weighted-average assumptions used to determine net periodic
benefit cost for years ended December 31:
Pension Benefits Retiree Health
2009 2008 2007 2006 2009 2008 2007 2006
Discount rate 6.3% 5.9% 5.3% 5.2% 6.3% 6.2% 5.8% 5.6%
Expected
return on
plan assets 7.4 7.6 7.6 7.8 —(1) —(1) —(1) —(1)
Rate of
compensation
increase 3.9 4.1 4.1 3.9 —(2) —(2) —(2) —(2)
(1) Expected return on plan assets is not applicable to retiree health benefits as these plans are
not funded.
(2) Rate of compensation increase is not applicable to retiree health benefits as compensation
levels do not impact earned benefits.
Assumed health care cost trend rates at December 31,
2008 2007
Health care cost trend rate assumed for
next year 9.4% 10.4%
Rate to which the cost trend rate is assumed
to decline (the ultimate trend rate) 5.0% 5.0%
Year that the rate reaches the ultimate
trend rate 2013 2013
Assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one-percentage-
point change in assumed health care cost trend rates would have
the following effects:
One-percentage-point
increase
One-percentage-point
decrease
Effect on total service and
interest cost
components $ 6 $ (5)
Effect on post-retirement
benefit obligation 68 (61)
Note 15 – Income and Other Taxes
(Loss) income before income taxes for the three years ended
December 31, 2008 were as follows:
2008 2007 2006
Domestic (loss) income $(662) $ 667 $429
Foreign income 548 771 379
(Loss) income before income taxes $(114) $1,438 $808
(Benefits) provisions for income taxes for the three years ended
December 31, 2008 were as follows:
2008 2007 2006
Federal income taxes
Current $ (26) $ 30 $(448)
Deferred (285) 92 94
Foreign income taxes
Current 118 144 50
Deferred 4120 (9)
State income taxes
Current 12 11
Deferred (43) 12 14
Total $(231) $400 $(288)
A reconciliation of the U.S. federal statutory income tax rate to the
consolidated effective income tax rate for the three years ended
December 31, 2008 was as follows:
2008 2007 2006
U.S. federal statutory income tax rate 35.0% 35.0% 35.0%
Nondeductible expenses (13.5) 0.9 1.4
Effect of tax law changes 11.1 1.1 (1.8)
Change in valuation allowance for
deferred tax assets (14.6) 1.0 1.4
State taxes, net of federal benefit 25.4 1.3 1.8
Audit and other tax return
adjustments 58.5 (4.2) (62.5)
Tax-exempt income 5.9 (0.6) (0.9)
Other foreign, including earnings
taxed at different rates 103.2 (7.4) (10.5)
Other (8.4) 0.7 0.5
Effective income tax rate 202.6% 27.8% (35.6)%
On a consolidated basis, we paid a total of $194, $104, and $76 in
income taxes to federal, foreign and state jurisdictions during the
three years ended December 31, 2008, 2007 and 2006,
respectively.
Xerox 2008 Annual Report 79