Xerox 2010 Annual Report Download - page 44

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Management’s Discussion
Xerox 2010 Annual Report
Income Taxes
Year Ended December 31,
2010 2009 2008
Income Income Income
Pre-Tax Tax Effective Pre-Tax Tax Effective Pre-Tax Tax Effective
(in millions) Income Expense Tax Rate Income Expense Tax Rate Income Expense Tax Rate
Reported $ 815 $ 256 31.4% $ 627 $ 152 24.2% $ (79) $ (231) 292.4%
Adjustments:
Xerox restructuring charge(1) 483 166 (8) (3) 426 134
Acquisition-related costs 77 19 72 23 — —
Amortization of intangible assets 312 118 60 22 54 19
Venezuela devaluation costs 21 — — — — —
Medicare subsidy tax law change — (16) — — — —
Equipment write-off — — — — 39 15
Provision for securities litigation — — — — 774 283
ACS Shareholders’ litigation settlement 36 — — — — —
Loss on early extinguishment of debt 15 5 — — — 41
Adjusted(2) $ 1,759 $ 548 31.2% $ 751 $ 194 25.8% $ 1,214 $ 261 21.5%
The 2010 effective tax rate was 31.4%, or 31.2%(2) on an adjusted
basis, which was lower than the U.S. statutory rate primarily due to the
geographical mix of income before taxes and the related effective tax
rates in those jurisdictions as well as the U.S. tax impacts on certain
foreign income and tax law changes.
The 2009 effective tax rate was 24.2%, or 25.8%(2) on an adjusted basis,
which 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 was 292.4%, or 21.5%(2) on an adjusted
basis, which 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.
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 the
U.S. tax impacts on certain foreign income. In addition, our effective tax
rate will change based on discrete or other nonrecurring events (such as
audit settlements) that may not be predictable. We anticipate that our
effective tax rate for 2011 will be approximately 31%, excluding the
effects of any discrete events.
Refer to Note 16 – Income and Other Taxes in the Consolidated Financial
Statements for additional information.
(1)
Income tax benefit from restructuring in 2010 includes a $19 million benefit from
the sale of our Venezuelan operations.
(2) See the “Non-GAAP Measures” section for additional information.
Equity in Net Income of Unconsolidated Affiliates
Year Ended December 31,
(in millions) 2010 2009 2008
Total equity in net income of
unconsolidated affiliates $ 78 $ 41 $ 113
Fuji Xerox after-tax
restructuring costs(1) 38 46 16
(1) Represents our 25% share of Fuji Xerox after-tax restructuring costs. Amounts are
included in Total equity in net income of unconsolidated affiliates.
Equity in net income of unconsolidated affiliates primarily reflects our
25% share in Fuji Xerox.
The 2010 increase of $37 million from 2009 was primarily due to an
increase in Fuji Xerox’s net income, which was primarily driven by higher
revenue and cost improvements, as well as lower restructuring costs.
The 2009 decrease of $72 million from 2008 was primarily due to
Fuji Xerox’s lower net income, which was negatively impacted by the
weakness in the worldwide economy, as well as $46 million related to our
share of Fuji Xerox after-tax restructuring costs.
Recent Accounting Pronouncements
Refer to Note 1 – Summary of Significant Accounting Policies in the
Consolidated Financial Statements for a description of recent accounting
pronouncements including the respective dates of adoption and the
effects on results of operations and financial condition.