Xerox 2014 Annual Report Download - page 45

As discussed above, we estimated our provision for doubtful accounts based on historical experience and
customer-specific collection issues. This methodology was consistently applied for all periods presented. During the
five year period ended December 31, 2014, our reserve for doubtful accounts ranged from 3.1% to 3.4% of gross
receivables. Holding all assumptions constant, a 0.5-percentage point increase or decrease in the reserve from the
December 31, 2014 rate of 3.1% would change the 2014 provision by approximately $36 million.
Refer to Note 5 - Accounts Receivables, Net and Note 6 - Finance Receivables, Net in the Consolidated Financial
Statements for additional information regarding our allowance for doubtful accounts.
Pension Plan Assumptions
We sponsor defined benefit pension plans in various forms in several countries covering employees who meet
eligibility requirements. Several statistical and other factors that attempt to anticipate future events are used in
calculating the expense, liability and asset values related to our defined benefit pension plans. These factors include
assumptions we make about the expected return on plan assets, discount rate, lump-sum settlement rates, the rate
of future compensation increases and mortality. Differences between these assumptions and actual experiences are
reported as net actuarial gains and losses and are subject to amortization to net periodic benefit cost over future
periods. Over the past several years, we have amended several of our major defined benefit pension plans to
freeze current benefits and eliminate benefit accruals for future service. The freeze of current benefits is the primary
driver of the reduction in pension service costs since 2012. In certain plans we are required by law or statute to
continue to reflect salary increases and inflation in determining the benefit obligation related to prior service.
Cumulative net actuarial losses for our defined benefit pension plans of $3.3 billion as of December 31, 2014
increased by $924 million from December 31, 2013, reflecting the increase in our benefit obligations as a result of
lower discount rates and changes in U.S. mortality assumptions partially offset by actual asset returns exceeding
expected returns and settlement losses in the U.S. In October 2014, the Society of Actuaries issued new mortality
tables and a mortality improvement scale specifically intended for use in estimating retirement plan liabilities for
U.S. plans. The new tables reflect a longer life expectancy for retirees than projected in past tables, which
accordingly resulted in an increase to our U.S. defined benefit plan obligations. The total actuarial loss at December
31, 2014 is subject to offsetting gains or losses in the future due to changes in actuarial assumptions and will be
recognized in future periods through amortization or settlement losses.
We used a consolidated weighted average expected rate of return on plan assets of 6.7% for 2014, 6.7% for 2013
and 6.9% for 2012, on a worldwide basis. During 2014, the actual return on plan assets was $1,297 million as
compared to an expected return of $632 million. When estimating the 2015 expected rate of return, in addition to
assessing recent performance, we considered the historical returns earned on plan assets, the rates of return
expected in the future, particularly in light of current economic conditions, and our investment strategy and asset
mix with respect to the plans' funds. The weighted average expected rate of return on plan assets we will use in
2015 is 6.0%. The decline in the 2015 rate reflects the increased investment in fixed income securities as we
reposition our investment portfolios in light of the freeze of plan benefits.
Another significant assumption affecting our defined benefit pension obligations and the net periodic benefit cost is
the rate that we use to discount our future anticipated benefit obligations. In the U.S. and the U.K., which comprise
approximately 75% of our projected benefit obligation, we consider the Moody's Aa Corporate Bond Index and the
International Index Company's iBoxx Sterling Corporate AA Cash Bond Index, respectively, in the determination of
the appropriate discount rate assumptions. The consolidated weighted average discount rate we used to measure
our pension obligations as of December 31, 2014 and to calculate our 2015 expense was 3.4%; the rate used to
calculate our obligations as of December 31, 2013 and our 2014 expense was 4.4%. The weighted average
discount rate we used to measure our retiree health obligation as of December 31, 2014 and to calculate our 2015
expense was 3.8%; the rate used to calculate our obligation at December 31, 2013 and our 2014 expense was
4.5%.
Holding all other assumptions constant, a 0.25% increase or decrease in the discount rate would change the 2015
projected net periodic pension cost by approximately $30 million. Likewise, a 0.25% increase or decrease in the
expected return on plan assets would change the 2015 projected net periodic pension cost by $18 million.
One of the most significant and volatile elements of our net periodic defined benefit pension plan expense is
settlement losses. Our primary domestic plans allow participants the option of settling their vested benefits through
the receipt of a lump-sum payment.
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