Xerox 2010 Annual Report Download - page 77

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
75Xerox 2010 Annual Report
Depreciation expense and operating lease rent expense for the years
ended December 31, 2010, 2009 and 2008 were as follows:
2010 2009 2008
Depreciation expense $379 $247 $257
Operating lease rent expense(1) 632 267 252
(1) We lease certain land, buildings and equipment, substantially all of which are
accounted for as operating leases.
Future minimum operating lease commitments that have initial or
remaining non-cancelable lease terms in excess of one year at December
31, 2010 were as follows:
2011 2012 2013 2014 2015 Thereafter
$669 $486 $337 $171 $118 $106
We have an information management contract with HP Enterprise
Services (“HPES”), the legal successor to Electronic Data Systems Corp.,
through March 2014. Services to be provided under this contract
include support for European mainframe system processing, as well
as workplace, service desk and voice and data network management.
Although the HPES contract runs through March 2014, we may choose
to transfer some of the services to internal Xerox providers before the
HPES contract ends. There are no minimum payments required under
this contract. We can terminate the contract for convenience without
paying a termination fee by providing 60 days’ prior notice. Should we
terminate the contract for convenience, we have an option to purchase
the assets placed in service under the HPES contract. Payments to HPES,
which are primarily recorded in selling, administrative and general
expenses, were $98, $198 and $279 for the years ended December 31,
2010, 2009 and 2008, respectively.
During 2010 and 2009 we terminated several agreements with HPES
for information management services and either terminated the
services or entered into new agreements for similar services with several
alternative providers. Services provided under these new contracts
include mainframe application processing, development and support
and mid-range applications processing and support. These contracts
have various terms through 2015. Some of the contracts require
minimum payments and include termination penalties. Payments for
information management services which are primarily recorded in
selling, administrative and general expenses were $44 and $26 for the
years ended December 31, 2010 and 2009, respectively.
Note 7 – Investments in Affiliates, at Equity
Investments in corporate joint ventures and other companies in which
we generally have a 20% to 50% ownership interest at December 31,
2010 and 2009 were as follows:
2010 2009
Fuji Xerox $ 1,217 $ 998
All other equity investments 74 58
Investments in Affiliates, at Equity $ 1,291 $ 1,056
The transfer of equipment from our inventories to equipment subject
to an operating lease is presented in our Consolidated Statements of
Cash Flows in the operating activities section as a non-cash adjustment.
Equipment on operating leases and similar arrangements consists of our
equipment rented to customers and depreciated to estimated salvage
value at the end of the lease term. We recorded $31, $52 and $115 in
inventory write-down charges for the years ended December 31, 2010,
2009 and 2008, respectively.
Equipment on operating leases and the related accumulated
depreciation at December 31, 2010 and 2009 were as follows:
2010 2009
Equipment on operating leases $ 1,561 $ 1,583
Accumulated depreciation (1,031) (1,032)
Equipment on Operating Leases, net $ 530 $ 551
Depreciable lives generally vary from three to four years consistent
with our planned and historical usage of the equipment subject to
operating leases. Depreciation and obsolescence expense for equipment
on operating leases was $313, $329 and $298 for the years ended
December 31, 2010, 2009 and 2008, respectively. Our equipment
operating lease terms vary, generally from 12 to 36 months. Scheduled
minimum future rental revenues on operating leases with original terms
of one year or longer are:
2011 2012 2013 2014 2015 Thereafter
$389 $279 $180 $87 $41 $14
Total contingent rentals on operating leases, consisting principally of
usage charges in excess of minimum contracted amounts, for the years
ended December 31, 2010, 2009 and 2008 amounted to $133, $125
and $117, respectively.
Note 6 – Land, Buildings and Equipment, Net
Land, buildings and equipment, net at December 31, 2010 and 2009
were as follows:
Estimated
Useful Lives
(Years) 2010 2009
Land — $ 63 $ 45
Buildings and building equipment 25 to 50 1,133 1,192
Leasehold improvements Varies 455 328
Plant machinery 5 to 12 1,607 1,686
Office furniture and equipment 3 to 15 1,306 994
Other 4 to 20 115 100
Construction in progress — 67 33
Subtotal 4,746 4,378
Accumulated depreciation (3,075) (3,069)
Land, Buildings and
Equipment, net
$ 1,671 $ 1,309