Xerox 2011 Annual Report Download - page 96

94
We file income tax returns in the U.S. federal jurisdiction and various
foreign jurisdictions. In the U.S., with the exception of ACS, we are no
longer subject to U.S. federal income tax examinations for years before
2007. ACS is no longer subject to such examinations for years before 2004.
With respect to our major foreign jurisdictions, we are no longer subject to
tax examinations by tax authorities for years before 2000.
DeferredIncomeTaxes
In substantially all instances, deferred income taxes have not been
provided on the undistributed earnings of foreign subsidiaries and other
foreign investments carried at equity. The amount of such earnings at
December 31, 2011 was approximately $8 billion. These earnings have
been indefinitely reinvested and we currently do not plan to initiate any
action that would precipitate a deferred tax impact. We do not believe
it is practical to calculate the potential deferred tax impact, as there is a
significant amount of uncertainty with respect to determining the amount
of foreign tax credits as well as any additional local withholding tax and
other indirect tax consequences that may arise from the distribution of
these earnings. In addition, because such earnings have been indefinitely
reinvested in our foreign operations, repatriation would require liquidation
of those investments or a recapitalization of our foreign subsidiaries, the
impacts and effects of which are not readily determinable. Our 2001 sale
of half of our ownership interest in Fuji Xerox resulted in our investment
no longer qualifying as a foreign corporate joint venture. Accordingly,
deferred taxes are required to be provided on the undistributed earnings
of Fuji Xerox, arising subsequent to such date, as we no longer have the
ability to ensure indefinite reinvestment.
The tax effects of temporary differences that give rise to significant
portions of the deferred taxes were as follows:
December 31,
2011 2010
Deferred Tax Assets
Research and development $ 876 $ 855
Post-retirement medical benefits 368 373
Depreciation 224 200
Net operating losses 637 634
Other operating reserves 95 194
Tax credit carryforwards 379 409
Deferred compensation 306 340
Allowance for doubtful accounts 93 97
Restructuring reserves 29 78
Pension 547 437
Other 168 156
Subtotal 3,722 3,773
Valuation allowance (677) (735)
Total $ 3,045 $ 3,038
Deferred Tax Liabilities
Unearned income and installment sales $ 1,016 $ 1,025
Intangibles and goodwill 1,227 1,229
Other 13 54
Total $ 2,256 $ 2,308
Total Deferred Taxes, Net $ 789 $ 730
UnrecognizedTaxBenetsandAuditResolutions
Due to the extensive geographical scope of our operations, we are subject
to ongoing tax examinations in numerous jurisdictions. Accordingly, we
may record incremental tax expense based upon the more-likely-than-not
outcomes of any uncertain tax positions. In addition, when applicable,
we adjust the previously recorded tax expense to reflect examination
results when the position is effectively settled. Our ongoing assessments
of the more-likely-than-not outcomes of the examinations and related
tax positions require judgment and can increase or decrease our effective
tax rate, as well as impact our operating results. The specific timing of
when the resolution of each tax position will be reached is uncertain. As
of December 31, 2011, we do not believe that there are any positions for
which it is reasonably possible that the total amount of unrecognized tax
benefits will significantly increase or decrease within the next 12 months.
A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
2011 2010 2009
Balance at January 1 $ 186 $ 148 $ 170
Additions from acquisitions — 46 —
Additions related to current year 43 38 6
Additions related to prior
years’ positions 38 24 27
Reductions related to prior
years’ positions (17) (16) (33)
Settlements with taxing
authorities(1) (14) (19) (7)
Reductions related to lapse
of statute of limitations (8) (35) (29)
Currency (3) — 14
Balance at December 31 $ 225 $ 186 $ 148
(1) Majority of settlements did not result in the utilization of cash.
Included in the balances at December 31, 2011, 2010 and 2009 are
$36, $39 and $67, respectively, of tax positions that are highly certain of
realizability but for which there is uncertainty about the timing or may
be reduced through an indirect benefit from other taxing jurisdictions.
Because of the impact of deferred tax accounting, other than for the
possible incurrence of interest and penalties, the disallowance of these
positions would not affect the annual effective tax rate.
We have filed claims in certain jurisdictions to assert our position should
the law be clarified by judicial means. At this point in time, we believe
it is unlikely that we will receive any benefit from these types of claims
but we will continue to analyze as the issues develop. Accordingly, we
have not included any benefit for these types of claims in the amount of
unrecognized tax benefits.
We recognized interest and penalties accrued on unrecognized tax
benefits, as well as interest received from favorable settlements within
income tax expense. We had $28, $31 and $13 accrued for the payment
of interest and penalties associated with unrecognized tax benefits at
December 31, 2011, 2010 and 2009, respectively.
Notes to the Consolidated
Financial Statements
(in millions, except per-share data and where otherwise noted)