Xerox 2011 Annual Report Download - page 62

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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 $22.6 billion global enterprise for business process and
document management. We offer business process outsourcing and IT
outsourcing services, including data processing, healthcare solutions,
human resource benefits management, finance support, transportation
solutions and customer relationship management services for commercial
and government organizations worldwide. The company also provides
extensive leading-edge document technology, services, software and
genuine Xerox supplies for graphic communication and office printing
environments of any size.
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 before Income Taxes and Equity Income” as “pre-tax
income” throughout the Notes to the Consolidated Financial Statements.
UseofEstimates
The preparation of our Consolidated Financial Statements 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, 2011:
Year Ended December 31,
Expense/(Income) 2011 2010 2009
Provision for restructuring and
asset impairments $ 33 $ 483 $ (8)
Provisions for receivables(1) 154 180 289
Provisions for litigation and
regulatory matters 11 (4) 9
Provisions for obsolete and
excess inventory 39 31 52
Provision for product warranty
liability 30 33 34
Depreciation and obsolescence of
equipment on operating leases 294 313 329
Depreciation of buildings
and equipment 405 379 247
Amortization of internal
use software 91 70 53
Amortization of product software 11 7 5
Amortization of acquired
intangible assets(2) 401 316 64
Amortization of customer
contract costs 49 12 —
Defined pension benefits –
net periodic benefit cost(3) 177 304 232
Other post-retirement benefits –
net periodic benefit cost 14 32 26
Income tax expense(4) 386 256 152
(1) Includes net receivable adjustments of $(3), $(8) and $(2) for 2011, 2010 and 2009,
respectively.
(2) Includes amortization of approximately $3 for patents, which is included in cost of
sales for each period presented.
(3) 2011 includes $107 pre-tax curtailment gain – refer to Note 14 – Employee Benefit
Plans for additional information.
(4) Includes impacts from changes in unrecognized tax benefits and deferred tax
valuation allowances.
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.
Notes to the Consolidated
Financial Statements
(in millions, except per-share data and where otherwise noted)