Xerox 2009 Annual Report Download - page 36

34 Xerox 2009 Annual Report
Management’s Discussion
Equity in Net Income of Unconsolidated Affiliates
2009 equity in net income of unconsolidated affiliates of $41 million
is principally related to our 25% share of Fuji Xerox income. The $72
million decrease from 2008 is primarily due to Fuji Xerox’s lower net
income, which has been impacted by the worldwide economic weakness,
and includes $46 million related to our share of Fuji Xerox after-tax
restructuring costs.
2008 equity in net income of unconsolidated affiliates of $113 million
increased by $16 million from 2007, primarily due to a $14 million
reduction in our share of Fuji Xerox restructuring charges.
Subsequent Events
We have operations in Venezuela where the U.S. Dollar is the functional
currency. At December 31, 2009 our Venezuelan operations had
approximately 90 million in net Bolivar-denominated monetary assets
that were re-measured to U.S. Dollars at the official exchange rate of
2.15 Bolivars to the Dollar. In January 2010, Venezuela announced a
devaluation of the Bolivar to an official rate of 4.30 Bolivars to the Dollar
for our products. As a result of this devaluation, we expect to record a
loss of approximately $21 million in the first quarter of 2010 for the
re-measurement of our net Bolivar-denominated monetary assets. Other
than the loss from re-measurement, we do not expect the devaluation to
materially impact our results of operations or financial position in 2010,
since we derive less than 0.5% of our total revenue from Venezuela and
expect to take actions to lessen the effect of the devaluation.
On January 20, 2010 we acquired Irish Business Systems Limited (“IBS”)
for approximately $31 million. This acquisition expands our reach into
the small and mid-size business (SMB) market in Ireland. IBS, with eight
offices located throughout Ireland, is a managed print services provider
and the largest independent supplier of digital imaging and printing
solutions in Ireland.
On February 5, 2010 we completed the acquisition of ACS. Refer to
Note 3 – Acquisitions, Note 11 – Debt and Note 17 – Shareholders’
Equity for further information regarding the acquisition and associated
funding for it.
Recent Accounting Pronouncements
On January 1, 2009 we adopted SFAS No. 160 “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No. 51”
(Accounting Standards Codification™ Topic 810-10-65). This guidance
requires that minority interests be renamed noncontrolling interests
and be presented as a separate component of equity. In addition, the
Company must report a consolidated net income (loss) measure that
includes the amount attributable to such noncontrolling interests for all
periods presented.
Refer to Note 1 – Summary of Significant Accounting Policies in the
Consolidated Financial Statements for a description of all recent
accounting pronouncements, including the respective dates of adoption
and the effects on results of operations and financial condition.
Income Taxes
Year Ended December 31,
(in millions) 2009 2008 2007
Pre-tax income (loss) $ 627 $ (79) $ 1,468
Income tax expense (benefit) 152 (231) 400
Effective tax rate 24.2% 292.4% 27.2%
The 2009 effective tax rate of 24.2% was lower than the U.S. statutory
tax rate, primarily reflecting the benefit to taxes from the geographical
mix of income before taxes and the related effective tax rates in those
jurisdictions, and the settlement of certain previously unrecognized
tax benefits partially offset by a reduction in the utilization of foreign
tax credits.
The 2008 effective tax rate of 292.4% reflected the tax benefits from
certain discrete items including the net provision for litigation matters;
the second, third and fourth quarter restructuring and asset impairment
charges; the product line equipment write-off; and the settlement of
certain previously unrecognized tax benefits. Excluding these items, the
adjusted effective tax rate was 20.9%*. The adjusted 2008 effective tax
rate was lower than the U.S. statutory tax rate, primarily reflecting the
benefit to taxes from the geographical mix of income before taxes and
the related effective tax rates in those jurisdictions, the utilization of
foreign tax credits and tax law changes.
The 2007 effective tax rate of 27.2% was lower than the U.S. statutory
rate, primarily reflecting tax benefits from the geographical mix of
income before taxes and the related effective tax rates in those juris-
dictions and the utilization of foreign tax credits, as well as the resolution
of other tax matters. These benefits were partially offset by changes
in tax law.
Our effective tax rate will change based on nonrecurring events, as well
as recurring factors including the geographical mix of income before
taxes and the related effective tax rates in those jurisdictions and
available foreign tax credits. In addition, our effective tax rate will
change based on discrete or other nonrecurring events (such as audit
settlements) that may not be predictable. Including the results from
ACS, we anticipate that our effective tax rate for 2010 will be approxi-
mately 32%, excluding the effects of any discrete events.
Refer to Note 15 – Income and Other Taxes in the Consolidated
Financial Statements for additional information.
* See the “Non-GAAP Measures” section for additional information.