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93Xerox 2011 Annual Report
A reconciliation of the U.S. federal statutory income tax rate to the
consolidated effective income tax rate was as follows:
Year Ended December 31,
2011 2010 2009
U.S. federal statutory income
tax rate 35.0% 35.0% 35.0%
Nondeductible expenses 2.0% 6.3% 3.2%
Effect of tax law changes 0.2% (0.2)% —%
Change in valuation allowance
for deferred tax assets (0.3)% 2.6% (1.7)%
State taxes, net of federal benefit 2.4% 2.0% (0.2)%
Audit and other tax return
adjustments (1.0)% (3.6)% (8.7)%
Tax-exempt income, credits
and incentives (3.1)% (3.9)% (4.7)%
Foreign rate differential
adjusted for U.S. taxation
of foreign profits(1) (10.4)% (6.7)% 0.5%
Other (0.1)% (0.1)% 0.8%
Effective Income Tax Rate
24.7% 31.4% 24.2%
(1) The “U.S. taxation of foreign profits” represents the U.S. tax, net of foreign tax credits,
associated with actual and deemed repatriations of earnings from our non-U.S.
subsidiaries.
On a consolidated basis, we paid a total of $94, $49 and $78 in income
taxes to federal, foreign and state jurisdictions during the three years
ended December 31, 2011, 2010 and 2009, respectively.
Total income tax expense (benefit) was allocated as follows:
Year Ended December 31,
2011 2010 2009
Pre-tax income $ 386 $ 256 $ 152
Common shareholders’ equity:
Changes in defined benefit
plans (277) 12 (61)
Stock option and incentive
plans, net 1 (6) 21
Cash flow hedges 3 5 —
Translation adjustments 2 6 (13)
Total Income Tax Expense
(Benefit) $ 115 $ 273 $ 99
Assumed healthcare cost trend rates were as follows:
December 31,
2011 2010
Healthcare cost trend rate assumed
for next year 8.5% 9.0%
Rate to which the cost trend rate is assumed
to decline (the ultimate trend rate) 4.9% 4.9%
Year that the rate reaches the ultimate
trend rate 2017 2017
Assumed healthcare cost trend rates have a significant effect on the
amounts reported for the healthcare plans. A 1-percentage point change
in assumed healthcare cost trend rates would have the following effects:
1% increase 1% decrease
Effect on total service and interest
cost components $ 5 $ (4)
Effect on post-retirement benefit obligation 89 (72)
Note 15 – Income and Other Taxes
Income before income taxes (“pre-tax income”) was as follows:
Year Ended December 31,
2011 2010 2009
Domestic income $ 917 $ 433 $ 45
Foreign income 648 382 582
Income before Income Taxes $ 1,565 $ 815 $ 627
Provisions (benefits) for income taxes were as follows:
Year Ended December 31,
2011 2010 2009
Federal Income Taxes
Current $ 52 $ 153 $ (50)
Deferred 134 (17) 109
Foreign Income Taxes
Current 103 59 84
Deferred 38 8 11
State Income Taxes
Current 28 46 (2)
Deferred 31 7 —
Total Provisions (Benefits) $ 386 $ 256 $ 152
Notes to the Consolidated
Financial Statements
(in millions, except per-share data and where otherwise noted)