Xerox 2012 Annual Report Download - page 40

Management’s Discussion
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The 2010 net currency losses included 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.
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 2012, 2011 and 2010
represent charges related to probable losses for various legal
matters, none of which were individually material. Refer to Note 17 –
Contingencies and Litigation, in the Consolidated Financial Statements
for additional information regarding litigation against the Company.
Loss on Sales of Accounts Receivables: Represents the loss incurred
on our sales of accounts receivables. Refer to “Sales of Accounts
Receivables” below and Note 4 – Accounts Receivables, Net in
the Consolidated Financial Statements for additional information
regarding our sales of receivables.
Loss on Early Extinguishment of Liability: The 2011 loss of
$33 million was related to the redemption by Xerox Capital Trust I,
our wholly-owned subsidiary trust, of 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 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.
Deferred Compensation Investment Gains: Represents gains
on investments supporting certain of our deferred compensation
arrangements. These gains or losses are offset by an increase or
decrease, respectively, in compensation expense recorded in SAG in our
Services segment as a result of the increase or decrease in the liability
associated with these arrangements.
Income Taxes
The 2012 effective tax rate was 20.5% or 24.0% on an adjusted basis.1
The adjusted tax rate for the year was lower than the U.S. statutory
rate primarily due to foreign tax credits resulting from anticipated
dividends and other foreign transactions as well as the geographical
mix of profits. In addition, a net tax benefit from adjustments of certain
unrecognized tax positions and deferred tax valuation allowances was
offset by a tax law change.
The 2011 effective tax rate was 24.7% or 27.5% on an adjusted basis.1
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.1
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.
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 2012 includes a benefit of approximately 12-percentage
points from these non-U.S. operations. Refer to Note 16 – 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 (e.g. audit settlements, tax law changes,
changes in valuation allowances, etc.) that may not be predictable. We
anticipate that our effective tax rate for 2013 will be approximately
28%, which excludes the effects of intangibles amortization and
other discrete events. We also expect to record an estimated discrete
benefit of approximately $19 million in the first quarter 2013 for the
retroactive benefits of the American Taxpayer Relief Act of 2012 which
was signed into law on January 2, 2013.
Equity in Net Income of Unconsolidated Affiliates
Year Ended December 31,
(in millions) 2012 2011 2010
Total equity in net income of
unconsolidated affiliates $ 152 $ 149 $ 78
Fuji Xerox after-tax restructuring costs 16 19 38
Equity in net income of unconsolidated affiliates primarily reflects our
25% share of Fuji Xerox.
The 2011 increase of $71 million was primarily due to an increase in
Fuji Xerox’s net income, which was primarily driven by higher revenue
and cost improvements, as well as the strengthening of the Yen and
lower restructuring costs.