Xerox 2010 Annual Report Download - page 43

41Xerox 2010 Annual Report
Management’s Discussion
The 2009 net currency losses were primarily due to the significant
movement in exchange rates among the U.S. Dollar, Euro and Yen in the
first quarter of 2009, as well as the increased cost of hedging, particularly
in developing markets.
The 2008 currency losses were primarily due to net re-measurement
losses associated with our Yen-denominated payables, foreign currency-
denominated assets and liabilities in our developing markets and the
cost of hedging. The currency losses on Yen-denominated payables were
largely limited to the first quarter 2008 as a result of the significant and
rapid weakening of the U.S. Dollar and Euro versus the Yen.
ACSShareholders’LitigationSettlement: Represents litigation expense
of $36 million for the settlement of claims by ACS shareholders arising
from our acquisition of ACS. The total settlement for all defendants was
approximately $69 million, with Xerox paying approximately $36 million
net of insurance proceeds.
Litigationmatters: The 2010 and 2009 amounts for litigation
matters primarily relate to changes in estimated probable losses for
various legal matters.
In 2008 legal matters consisted of the following:
$721 million reflecting provisions for the $670 million court approved
•
settlement of Carlson v. Xerox Corporation and other pending
securities-related cases, net of insurance recoveries.
$36 million for probable losses on Brazilian labor-related contingencies.
•
Following an assessment of the most recent trend in the outcomes
of these matters, we reassessed the probable estimated loss and, as
a result, recorded an additional reserve of $36 million in the fourth
quarter of 2008.
$24 million associated with probable losses from various other
•
legal matters.
Refer to Note 17 – Contingencies in the Consolidated Financial
Statements for additional information regarding litigation against
the Company.
Allotherexpenses,net:All Other expenses in 2010 decreased primarily
due to lower interest expense on the Brazil tax and labor contingencies.
All Other expenses, net in 2009 were $19 million higher than 2008,
primarily due to fees associated with the sale of receivables, as well as an
increase in interest expense related to Brazil tax and labor contingencies.
Other Expenses, Net
Other expenses, net for the three years ended December 31, 2010 were
as follows:
(in millions) 2010 2009 2008
Non-financing interest expense $ 346 $ 256 $ 262
Interest income (19) (21) (35)
Gain on sales of businesses
and assets (18) (16) (21)
Currency losses, net 11 26 34
ACS shareholders litigation
settlement 36 — —
Litigation matters (4) 9 781
Loss on early extinguishment
of debt 15 — —
All Other expenses, net 22 31 12
Total Other Expenses, Net $ 389 $ 285 $ 1,033
Non-nancinginterestexpense:2010 non-financing interest expense
of $346 million increased $90 million from 2009 due to higher
average debt balances, primarily resulting from the funding of the ACS
acquisition, partially offset by the early extinguishment of certain debt
instruments as well as the scheduled repayments of other debt.
In 2009 non-financing interest expense decreased compared to 2008,
as interest expense associated with our $2.0 billion Senior Note offering
for the funding of the ACS acquisition was more than offset by lower
interest rates on the remaining debt.
Interestincome: Interest income is derived primarily from our invested
cash and cash equivalent balances. The decline in interest income in
2010 and 2009 was primarily due to lower average cash balances and
rates of return.
Gainonsalesofbusinessesandassets: Gains on sales of business
and assets primarily consisted of the sales of certain surplus facilities
in Latin America.
Currencylosses,net:Currency losses primarily result from the
re-measurement of foreign currency-denominated assets and liabilities,
the cost of hedging foreign currency-denominated assets and liabilities,
the mark-to-market of foreign exchange contracts utilized to hedge
those foreign currency-denominated assets and liabilities and the
mark-to-market impact of hedges of anticipated transactions, primarily
future inventory purchases, for those that we do not apply cash flow
hedge accounting treatment.
The 2010 net currency losses were primarily due to the currency
devaluation in Venezuela. In January 2010, Venezuela announced a
devaluation of the Bolivar to an official rate of 4.30 Bolivars to the U.S.
Dollar for a majority of our products. As a result of this devaluation, we
recorded a currency loss of $21 million in the first quarter of 2010 for the
re-measurement of our net Bolivar-denominated monetary assets. This
loss was partially offset by a cumulative translation gain of $6 million
that was recognized upon the repatriation of cash and liquidation of a
foreign subsidiary.