Xerox 2010 Annual Report Download - page 60

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
58 Xerox 2010 Annual Report
Note 1 – Summary of Significant Accounting Policies
References herein to “we,” “us,” “our,” the “Company” and Xerox refer to
Xerox Corporation and its consolidated subsidiaries unless the context
specifically requires otherwise.
Description of Business and Basis of Presentation
We are a $22 billion global enterprise for business process and document
management. We provide essential back-office support through our
broad portfolio of technology, services and outsourcing offerings. We
also offer extensive business process outsourcing and information
technology outsourcing services through Affiliated Computer Services,
Inc. (“ACS”), which we acquired in February 2010. We develop,
manufacture, market, service and finance a complete range of document
equipment, software, solutions and services.
Basis of Consolidation
The Consolidated Financial Statements include the accounts of Xerox
Corporation and all of our controlled subsidiary companies. All significant
intercompany accounts and transactions have been eliminated.
Investments in business entities in which we do not have control, but
we have the ability to exercise significant influence over operating and
financial policies (generally 20% to 50% ownership) are accounted for
using the equity method of accounting. Operating results of acquired
businesses are included in the Consolidated Statements of Income from
the date of acquisition.
We consolidate variable interest entities if we are deemed to be the
primary beneficiary of the entity. Operating results for variable interest
entities in which we are determined to be the primary beneficiary are
included in the Consolidated Statements of Income from the date such
determination is made.
For convenience and ease of reference, we refer to the financial
statement caption “Income (Loss) before Income Taxes and Equity
Income” as “pre-tax income” or “pre-tax loss” throughout the Notes to
the Consolidated Financial Statements.
Use of Estimates
The preparation of our Consolidated Financial Statements, in
accordance with accounting principles generally accepted in the United
States of America, requires that we make estimates and assumptions
that affect the reported amounts of assets and liabilities, as well as the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during
the reporting period. Significant estimates and assumptions are used
for, but not limited to: (i) allocation of revenues and fair values in leases
and other multiple element arrangements; (ii) accounting for residual
values; (iii) economic lives of leased assets; (iv) revenue recognition for
services under the percentage-of-completion method; (v) allowance
for doubtful accounts; (vi) inventory valuation; (vii) restructuring and
related charges; (viii) asset impairments; (ix) depreciable lives of assets;
(x) useful lives of intangible assets; (xi) amortization period for customer
contract costs; (xii) pension and post-retirement benefit plans; (xiii)
income tax reserves and valuation allowances; and (xiv) contingency and
litigation reserves. Future events and their effects cannot be predicted
with certainty; accordingly, our accounting estimates require the exercise
of judgment. The accounting estimates used in the preparation of our
Consolidated Financial Statements will change as new events occur, as
more experience is acquired, as additional information is obtained and
as our operating environment changes. Actual results could differ from
those estimates.
The following table summarizes certain significant charges that require
management estimates for the three years ended December 31, 2010:
Years Ended December 31,
Expense/(Income) 2010 2009 2008
Restructuring provisions and
asset impairments $ 483 $ (8) $ 429
Provisions for receivables(1) 180 289 199
Provisions for litigation and
regulatory matters (4) 9 781
Provisions for obsolete and
excess inventory 31 52 115
Depreciation and obsolescence of
equipment on operating leases 313 329 298
Depreciation of buildings
and equipment 379 247 257
Amortization of internal
use software 70 53 56
Amortization of product software 7 5 —
Amortization of acquired
intangible assets(2) 316 64 58
Amortization of customer
contract costs 12 — —
Defined pension benefits –
net periodic benefit cost 304 232 174
Other post-retirement benefits –
net periodic benefit cost 32 26 77
Deferred tax asset valuation
allowance provisions 22 (11) 17
(1) Includes net receivable adjustments of $(8), $(2) and $11 for 2010, 2009 and 2008,
respectively.
(2) Includes amortization of $4 for patents, which is included in cost of sales for each
period presented.
Changes in Estimates
In the ordinary course of accounting for items discussed above, we
make changes in estimates as appropriate and as we become aware
of circumstances surrounding those estimates. Such changes and
refinements in estimation methodologies are reflected in reported
results of operations in the period in which the changes are made and,
if material, their effects are disclosed in the Notes to the Consolidated
Financial Statements.