Xerox 2009 Annual Report Download - page 53

51Xerox 2009 Annual Report
Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
Land, Buildings and Equipment and Equipment on Operating Leases
Land, buildings and equipment are recorded at cost. Buildings and
equipment are depreciated over their estimated useful lives. Leasehold
improvements are depreciated over the shorter of the lease term or
the estimated useful life. Equipment on operating leases is depreciated
to estimated salvage value over the lease term. Depreciation is
computed using the straight-line method. Significant improvements
are capitalized and maintenance and repairs are expensed. Refer to
Note 5 – Inventories and Equipment on Operating Leases, Net and
Note 6 – Land, Buildings and Equipment, Net for further discussion.
Internal Use Software
We capitalize direct costs associated with developing, purchasing or
otherwise acquiring software for internal use and amortize these costs
on a straight-line basis over the expected useful life of the software,
beginning when the software is implemented. Useful lives of the
software generally vary from three to seven years. Amortization expense
was $53, $50 and $76 for the years ended December 31, 2009, 2008
and 2007, respectively. Capitalized costs were $354 and $288 as of
December 31, 2009 and 2008, respectively.
Goodwill and Other Intangible Assets
Goodwill is tested for impairment annually or more frequently if an
event or circumstance indicates that an impairment loss may have
been incurred. Application of the goodwill impairment test requires
judgment, including the identification of reporting units, assignment
of assets and liabilities to reporting units, assignment of goodwill to
reporting units and determination of the fair value of each reporting
unit. We estimate the fair value of each reporting unit using a discounted
cash flow methodology. This requires us to use significant judgment
including estimation of future cash flows, which is dependent on internal
forecasts, estimation of the long-term rate of growth for our business,
the useful life over which cash flows will occur, determination of our
weighted average cost of capital and relevant market data.
Other intangible assets primarily consist of assets obtained in connection
with business acquisitions, including installed customer base and
distribution network relationships, patents on existing technology and
trademarks. We apply an impairment evaluation whenever events or
changes in business circumstances indicate that the carrying value of
our intangible assets may not be recoverable. Other intangible assets
are amortized on a straight-line basis over their estimated economic
lives. We believe that the straight-line method of amortization reflects
an appropriate allocation of the cost of the intangible assets to earnings
in proportion to the amount of economic benefits obtained annually
by the Company. Refer to Note 8 – Goodwill and Intangible Assets, Net
for further information.
Restricted Cash and Investments
As more fully discussed in Note 16 – Contingencies, various litigation
matters in Brazil require us to make cash deposits as a condition of
continuing the litigation. In addition, several of our secured financing
arrangements and other contracts require us to post cash collateral
or maintain minimum cash balances in escrow. These cash amounts
are classified in our Consolidated Balance Sheets based on when the
cash will be contractually or judicially released (refer to Note 10 –
Supplementary Financial Information for classification of amounts).
At December 31, 2009 and 2008, such restricted cash amounts
were as follows:
December 31,
2009 2008
Tax and other litigation deposits in Brazil $ 240 $ 167
Escrow and cash collections related to receivable
sales and secured borrowing arrangements 29 16
Other restricted cash 20 20
Total Restricted Cash and Investments $ 289 $ 203
Provisions for Losses on Uncollectible Receivables
The provisions for losses on uncollectible trade and finance receivables
are determined principally on the basis of past collection experience
applied to ongoing evaluations of our receivables and evaluations of
the default risks of repayment.
Allowances for doubtful accounts as of December 31, 2009 and 2008
were as follows:
December 31,
2009 2008
Allowance for doubtful accounts receivables $ 148 $ 131
Allowance for doubtful finance receivables $ 222 $ 198
Inventories
Inventories are carried at the lower of average cost or market. Inventories
also include equipment that is returned at the end of the lease term.
Returned equipment is recorded at the lower of remaining net book
value or salvage value. Salvage value consists of the estimated market
value (generally determined based on replacement cost) of the
salvageable component parts, which are expected to be used in the
remanufacturing process. We regularly review inventory quantities
and record a provision for excess and/or obsolete inventory based
primarily on our estimated forecast of product demand, production
requirements and servicing commitments. Several factors may influence
the realizability of our inventories, including our decision to exit a
product line, technological changes and new product development.
The provision for excess and/or obsolete raw materials and equipment
inventories is based primarily on near-term forecasts of product demand
and include consideration of new product introductions, as well as
changes in remanufacturing strategies. The provision for excess and/or
obsolete service parts inventory is based primarily on projected servicing
requirements over the life of the related equipment populations.