Xerox 2011 Annual Report Download - page 41

Management’s Discussion
39Xerox 2011 Annual Report
The 2011 net currency losses were primarily due to the significant
movement in exchange rates during the third quarter of 2011 among the
U.S. Dollar, Euro, Yen and several developing market currencies.
The 2010 net currency losses include a currency loss of $21 million for the
re-measurement of our Venezuelan Bolivar denominated monetary net
assets following a devaluation of the Bolivar in the first quarter of 2010 .
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.
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 our developing markets.
ACSShareholders’LitigationSettlement: The 2010 expense of
$36 million relates to the settlement of claims by ACS shareholders
arising from our acquisition of ACS in 2010. The total settlement for
all defendants was approximately $69 million, with Xerox paying
approximately $36 million net of insurance proceeds.
LitigationMatters:Litigation matters for 2011, 2010 and 2009 represent
charges related to probable losses for various legal matters, none of which
were individually material. Refer to Note 16 – Contingencies and Litigation,
in the Consolidated Financial Statements for additional information
regarding litigation against the Company.
LossonEarlyExtinguishmentofLiability: In May 2011, Xerox Capital
Trust I, our wholly-owned subsidiary trust, redeemed its $650 million 8%
Preferred Securities due in 2027. The redemption resulted in a pre-tax loss
of $33 million ($20 million after-tax), representing the call premium of
approximately $10 million as well as the write-off of unamortized debt
costs and other liability carrying value adjustments of $23 million.
The 2010 loss on early extinguishment of liability of $15 million represents
the loss associated with the redemption of senior and medium-term notes
in the fourth quarter 2010 and reflects a call premium and the write-off of
unamortized debt costs.
AllOtherExpenses,Net: All other expenses, net for the year ended
December 31, 2011 increased $27 million driven in part by higher fees
associated with the sale of receivables as well as higher interest expense
on the Brazil tax and labor contingencies. All Other expenses, net for the
year ended December 31, 2010 decreased $9 million, primarily due to
lower interest expense on the Brazil tax and labor contingencies.
Income Taxes
The 2011 effective tax rate was 24.7%, or 27.5% on an adjusted basis(3).
The adjusted tax rate for the year was lower than the U.S. statutory
rate, primarily due to the geographical mix of profits as well as a higher
foreign tax credit benefit as a result of our decision to repatriate current-
year income from certain non-U.S. subsidiaries.
The 2010 effective tax rate was 31.4%, or 31.2% on an adjusted basis(3).
The adjusted tax rate for the year was lower than the U.S. statutory rate,
primarily due to the geographical mix of income before taxes and the
related 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% on an adjusted
basis(3). The adjusted tax rate for the year was lower than the U.S.
statutory 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.
Xerox operations are widely dispersed. The statutory tax rate in most
non-U.S. jurisdictions is lower than the combined U.S. and state tax rate.
The amount of income subject to these lower foreign rates relative to
the amount of U.S. income will impact our effective tax rate. However,
no one country outside of the U.S. is a significant factor to our overall
effective tax rate. Certain foreign income is subject to U.S. tax net of
any available foreign tax credits. Our full-year effective tax rate for 2011
includes a benefit of approximately 10 percentage points from these
non-U.S. operations. Refer to Note 15 – Income and Other Taxes in the
Consolidated Financial Statements for additional information regarding
the geographic mix of income before taxes and the related impacts on our
effective tax rate.
Our effective tax rate is based on nonrecurring events as well as recurring
factors, including the taxation of 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 2012 will be approximately 29%, excluding the
effects of intangibles amortization and any discrete events.