UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________________________
FORM 10-Q
_________________________________________________
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: March 31, 2012
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-04471
XEROX CORPORATION
(Exact Name of Registrant as specified in its charter)
_________________________________________________
New York | 16-0468020 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | |
P.O. Box 4505, 45 Glover Avenue Norwalk, Connecticut | 06856-4505 | |
(Address of principal executive offices) | (Zip Code) | |
(203) 968-3000
(Registrant’s telephone number, including area code)
_________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o
Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
Class | Outstanding at March 31, 2012 | |
Common Stock, $1 par value | 1,347,747,980 shares | |
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q and any exhibits to this Report may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. These factors include but are not limited to: changes in economic conditions, political conditions, trade protection measures, licensing requirements, environmental regulations and tax matters in the United States and in the foreign countries in which we do business; changes in foreign currency exchange rates; actions of competitors; our ability to obtain adequate pricing for our products and services and to maintain and improve cost efficiency of operations, including savings from restructuring actions; the risk that unexpected costs will be incurred; our ability to expand equipment placements; the risk that subcontractors, software vendors and utility and network providers will not perform in a timely, quality manner; the risk that individually identifiable information of customers, clients and employees could be inadvertently disclosed or disclosed as a result of a breach of our security; our ability to recover capital investments; development of new products and services; our ability to protect our intellectual property rights; interest rates, cost of borrowing and access to credit markets; the risk that multi-year contracts with governmental entities could be terminated prior to the end of the contract term; reliance on third parties for manufacturing of products and provision of services; our ability to drive the expanded use of color in printing and copying; the outcome of litigation and regulatory proceedings to which we may be a party; and other risks that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of our 2011 Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.
XEROX CORPORATION
FORM 10-Q
March 31, 2012
TABLE OF CONTENTS
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Item 6. | ||
For additional information about Xerox Corporation and access to our Annual Reports to Shareholders and SEC filings, free of charge, please visit our website at www.xerox.com/investor. Any information on or linked from the website is not incorporated by reference into this Form 10-Q.
ITEM 1 — FINANCIAL STATEMENTS
XEROX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended March 31, | ||||||||
(in millions, except per-share data) | 2012 | 2011 | ||||||
Revenues | ||||||||
Sales | $ | 1,588 | $ | 1,671 | ||||
Service, outsourcing and rentals | 3,767 | 3,632 | ||||||
Finance income | 148 | 162 | ||||||
Total Revenues | 5,503 | 5,465 | ||||||
Costs and Expenses | ||||||||
Cost of sales | 1,052 | 1,090 | ||||||
Cost of service, outsourcing and rentals | 2,690 | 2,514 | ||||||
Equipment financing interest | 53 | 60 | ||||||
Research, development and engineering expenses | 173 | 184 | ||||||
Selling, administrative and general expenses | 1,068 | 1,119 | ||||||
Restructuring and asset impairment charges | 17 | (15 | ) | |||||
Amortization of intangible assets | 82 | 85 | ||||||
Other expenses, net | 55 | 78 | ||||||
Total Costs and Expenses | 5,190 | 5,115 | ||||||
Income before Income Taxes and Equity Income | 313 | 350 | ||||||
Income tax expense | 77 | 95 | ||||||
Equity in net income of unconsolidated affiliates | 40 | 34 | ||||||
Net Income | 276 | 289 | ||||||
Less: Net income attributable to noncontrolling interests | 7 | 8 | ||||||
Net Income Attributable to Xerox | $ | 269 | $ | 281 | ||||
Basic Earnings per Share | $ | 0.20 | $ | 0.20 | ||||
Diluted Earnings per Share | $ | 0.19 | $ | 0.19 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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XEROX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended March 31, | ||||||||
(in millions) | 2012 | 2011 | ||||||
Net Income | $ | 276 | $ | 289 | ||||
Less: Net income attributable to noncontrolling interests | 7 | 8 | ||||||
Net Income Attributable to Xerox | $ | 269 | $ | 281 | ||||
Other Comprehensive Income (Loss)(1): | ||||||||
Translation adjustments, net | $ | 160 | $ | 297 | ||||
Unrealized losses, net | (43 | ) | (21 | ) | ||||
Changes in defined benefit plans, net | (54 | ) | (36 | ) | ||||
Other Comprehensive Income, net | 63 | 240 | ||||||
Less: Other comprehensive income attributable to noncontrolling interests | 1 | — | ||||||
Other Comprehensive Income Attributable to Xerox | $ | 62 | $ | 240 | ||||
Comprehensive Income, net | $ | 339 | $ | 529 | ||||
Less: Comprehensive income attributable to noncontrolling interests | 8 | 8 | ||||||
Comprehensive Income Attributable to Xerox | $ | 331 | $ | 521 | ||||
(1) Refer to Note 15 - Comprehensive Income for gross components of comprehensive income, reclassification adjustments out of accumulated other comprehensive income and related tax effects.
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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XEROX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in millions, except share data in thousands) | March 31, 2012 | December 31, 2011 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 1,514 | $ | 902 | ||||
Accounts receivable, net | 2,909 | 2,600 | ||||||
Billed portion of finance receivables, net | 155 | 166 | ||||||
Finance receivables, net | 2,139 | 2,165 | ||||||
Inventories | 1,065 | 1,021 | ||||||
Other current assets | 1,100 | 1,058 | ||||||
Total current assets | 8,882 | 7,912 | ||||||
Finance receivables due after one year, net | 3,976 | 4,031 | ||||||
Equipment on operating leases, net | 536 | 533 | ||||||
Land, buildings and equipment, net | 1,603 | 1,612 | ||||||
Investments in affiliates, at equity | 1,338 | 1,395 | ||||||
Intangible assets, net | 2,989 | 3,042 | ||||||
Goodwill | 8,918 | 8,803 | ||||||
Deferred tax assets, long-term | 638 | 672 | ||||||
Other long-term assets | 2,271 | 2,116 | ||||||
Total Assets | $ | 31,151 | $ | 30,116 | ||||
Liabilities and Equity | ||||||||
Short-term debt and current portion of long-term debt | $ | 1,145 | $ | 1,545 | ||||
Accounts payable | 1,758 | 2,016 | ||||||
Accrued compensation and benefits costs | 794 | 757 | ||||||
Unearned income | 407 | 432 | ||||||
Other current liabilities | 1,691 | 1,631 | ||||||
Total current liabilities | 5,795 | 6,381 | ||||||
Long-term debt | 8,483 | 7,088 | ||||||
Pension and other benefit liabilities | 2,369 | 2,487 | ||||||
Post-retirement medical benefits | 930 | 925 | ||||||
Other long-term liabilities | 834 | 861 | ||||||
Total Liabilities | 18,411 | 17,742 | ||||||
Series A Convertible Preferred Stock | 349 | 349 | ||||||
Common stock | 1,348 | 1,353 | ||||||
Additional paid-in capital | 6,318 | 6,317 | ||||||
Treasury stock, at cost | (3 | ) | (124 | ) | ||||
Retained earnings | 7,250 | 7,046 | ||||||
Accumulated other comprehensive loss | (2,654 | ) | (2,716 | ) | ||||
Xerox shareholders’ equity | 12,259 | 11,876 | ||||||
Noncontrolling interests | 132 | 149 | ||||||
Total Equity | 12,391 | 12,025 | ||||||
Total Liabilities and Equity | $ | 31,151 | $ | 30,116 | ||||
Shares of common stock issued | 1,348,159 | 1,352,849 | ||||||
Treasury stock | (411 | ) | (15,508 | ) | ||||
Shares of common stock outstanding | 1,347,748 | 1,337,341 | ||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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XEROX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, | ||||||||
(in millions) | 2012 | 2011 | ||||||
Cash Flows from Operating Activities: | ||||||||
Net income | $ | 276 | $ | 289 | ||||
Adjustments required to reconcile net income to cash flows from operating activities: | ||||||||
Depreciation and amortization | 313 | 291 | ||||||
Provision for receivables | 27 | 25 | ||||||
Provision for inventory | 10 | 13 | ||||||
Undistributed equity in net income of unconsolidated affiliates | (31 | ) | (33 | ) | ||||
Stock-based compensation | 31 | 32 | ||||||
Restructuring and asset impairment charges | 17 | (15 | ) | |||||
Payments for restructurings | (39 | ) | (57 | ) | ||||
Contributions to defined benefit pension plans | (79 | ) | (44 | ) | ||||
Increase in accounts receivable and billed portion of finance receivables | (452 | ) | (271 | ) | ||||
Collections of deferred proceeds from sales of receivables | 96 | 87 | ||||||
Increase in inventories | (34 | ) | (100 | ) | ||||
Increase in equipment on operating leases | (67 | ) | (61 | ) | ||||
Decrease in finance receivables | 164 | 95 | ||||||
Increase in other current and long-term assets | (101 | ) | (79 | ) | ||||
Decrease in accounts payable and accrued compensation | (144 | ) | (233 | ) | ||||
Decrease in other current and long-term liabilities | (35 | ) | (86 | ) | ||||
Net change in income tax assets and liabilities | 43 | 121 | ||||||
Net change in derivative assets and liabilities | 21 | 23 | ||||||
Other operating, net | (31 | ) | (27 | ) | ||||
Net cash used in operating activities | (15 | ) | (30 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Cost of additions to land, buildings and equipment | (91 | ) | (71 | ) | ||||
Proceeds from sales of land, buildings and equipment | 4 | 2 | ||||||
Cost of additions to internal use software | (37 | ) | (40 | ) | ||||
Acquisitions, net of cash acquired | (87 | ) | (43 | ) | ||||
Net change in escrow and other restricted investments | (3 | ) | (1 | ) | ||||
Net cash used in investing activities | (214 | ) | (153 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Net proceeds on debt | 998 | 13 | ||||||
Common stock dividends | (57 | ) | (60 | ) | ||||
Preferred stock dividends | (6 | ) | (6 | ) | ||||
Proceeds from issuances of common stock | 7 | 19 | ||||||
Excess tax benefits from stock-based compensation | — | 2 | ||||||
Payments to acquire treasury stock, including fees | (50 | ) | — | |||||
Repurchases related to stock-based compensation | — | (3 | ) | |||||
Distributions to noncontrolling interests | (57 | ) | (7 | ) | ||||
Net cash provided by (used in) financing activities | 835 | (42 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 6 | 14 | ||||||
Increase (decrease) in cash and cash equivalents | 612 | (211 | ) | |||||
Cash and cash equivalents at beginning of period | 902 | 1,211 | ||||||
Cash and Cash Equivalents at End of Period | $ | 1,514 | $ | 1,000 | ||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.
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XEROX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except per-share data and where otherwise noted)
Note 1 – Basis of Presentation
References herein to “we,” “us,” “our,” the “Company” and “Xerox” refer to Xerox Corporation and its consolidated subsidiaries unless the context specifically requires otherwise.
We have prepared the accompanying unaudited Condensed Consolidated Financial Statements in accordance with the accounting policies described in our 2011 Annual Report to Shareholders, which is incorporated by reference in our 2011 Annual Report on Form 10-K (“2011 Annual Report”), and the interim reporting requirements of Form 10-Q. Accordingly, certain information and note disclosures normally included in our annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. You should read these Condensed Consolidated Financial Statements in conjunction with the Consolidated Financial Statements included in our 2011 Annual Report.
In our opinion, all adjustments which are necessary for a fair statement of financial position, operating results and cash flows for the interim periods presented have been made. These adjustments consist of normal recurring items. Interim results of operations are not necessarily indicative of the results of the full year.
For convenience and ease of reference, we refer to the financial statement caption “Income before Income Taxes and Equity Income” as “pre-tax income.”
Note 2 – Recent Accounting Pronouncements
Fair Value Accounting: In May 2011, the FASB issued ASU 2011-04, which amended Fair Value Measurements and Disclosures - Overall (ASC Topic 820-10) to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are consistent between U.S. GAAP and International Financial Reporting Standards. This update changed certain fair value measurement principles and enhanced the disclosure requirements, particularly for level 3 fair value measurements. We adopted this update prospectively effective for our fiscal year beginning January 1, 2012. This update did not have a material effect on our financial condition, results of operations or disclosures.
Balance Sheet Offsetting: In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the Balance Sheet and instruments and transactions subject to an agreement similar to a master netting arrangement to enable users of their financial statements to understand the effects of offsetting and related arrangements on their financial position. This update is effective for our fiscal year beginning January 1, 2013 and must be applied retrospectively. The principal impact from this update will be to expand disclosures regarding our financial instruments. We currently report our derivative assets and liabilities on a gross basis in the Balance Sheet even in those instances where offsetting may be allowed under a master netting agreement.
Note 3 – Segment Reporting
Our reportable segments are aligned with how we manage the business and view the markets we serve. We report our financial performance based on the following two primary reportable segments – Services and Technology. Our Services segment operations involve delivery of a broad range of services including business process, document and IT outsourcing. Our Technology segment includes the sale and support of a broad range of document systems from entry level to high-end.
The Services segment is comprised of three outsourcing service offerings:
• | Business Process Outsourcing ("BPO") |
• | Document Outsourcing (which includes Managed Print Services) ("DO") |
• | Information Technology Outsourcing ("ITO") |
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Business process outsourcing services include service arrangements where we manage a customer’s business activity or process. Document outsourcing services include service arrangements that allow customers to streamline, simplify and digitize document-intensive business processes through automation and deployment of software applications and tools and the management of their printing needs. Document outsourcing services also include revenues from our partner print services offerings. Information technology outsourcing services include service arrangements where we manage a customer’s IT-related activities, such as application management and application development, data center operations or testing and quality assurance.
Our Technology segment is centered on strategic product groups, which share common technology, manufacturing and product platforms. This segment includes the sale of document systems and supplies, technical services and product financing. Our products range from:
• | “Entry,” which includes A4 devices and desktop printers; to |
• | “Mid-range,” which includes A3 devices that generally serve workgroup environments in midsize to large enterprises and includes products that fall into the following market categories: Color 41+ ppm priced at less than $100K and Light Production 91+ ppm priced at less than $100K; to |
• | “High-end,” which includes production printing and publishing systems that generally serve the graphic communications marketplace and large enterprises. |
The segment classified as Other includes several units, none of which meet the thresholds for separate segment reporting. This group primarily includes Xerox Supplies Business Group (predominantly paper sales), licensing revenues, GIS network integration solutions and electronic presentation systems and non-allocated Corporate items including non-financing interest, as well as other items included in Other expenses, net.
Operating segment revenues and profitability were as follows:
Three Months Ended March 31, | |||||||
Segment Revenue | Segment Profit (Loss) | ||||||
2012 | |||||||
Services | $ | 2,821 | $ | 263 | |||
Technology | 2,338 | 245 | |||||
Other | 344 | (52 | ) | ||||
Total | $ | 5,503 | $ | 456 | |||
2011 | |||||||
Services | $ | 2,584 | $ | 266 | |||
Technology | 2,495 | 266 | |||||
Other | 386 | (66 | ) | ||||
Total | $ | 5,465 | $ | 466 | |||
Three Months Ended March 31, | ||||||||
Reconciliation to Pre-tax Income | 2012 | 2011 | ||||||
Segment Profit | $ | 456 | $ | 466 | ||||
Reconciling items: | ||||||||
Restructuring and asset impairment charges | (17 | ) | 15 | |||||
Restructuring charges of Fuji Xerox | (4 | ) | (11 | ) | ||||
Amortization of intangible assets | (82 | ) | (85 | ) | ||||
Equity in net income of unconsolidated affiliates | (40 | ) | (34 | ) | ||||
Other | — | (1 | ) | |||||
Pre-tax Income | $ | 313 | $ | 350 | ||||
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Note 4 – Acquisitions
In February 2012, we acquired RK Dixon, a leading provider of IT services, copiers, printers and managed print services for approximately $58. The acquisition furthers our coverage of central Illinois and eastern Iowa, building on our strategy to create a nationwide network of locally-based companies focused on customers' needs to improve business performance through efficiencies.
RK Dixon is included within our Technology segment. Additionally, our Services segment acquired two businesses during the three months ended March 31, 2012 for a total of $29 in cash. The operating results of these acquisitions are not material to our financial statements and are included within our results from the respective acquisition dates. The purchase prices were primarily allocated to intangible assets and goodwill based on third-party valuations and management’s estimates.
Note 5 – Receivables, Net
Accounts Receivable Sales Arrangements
We have facilities in the U.S., Canada and several countries in Europe that enable us to sell to third-parties, on an on-going basis, certain accounts receivable without recourse. The accounts receivables sold are generally short-term trade receivables with payment due dates of less than 60 days. One of the facilities in the U.S. enables us to sell receivables on a revolving basis to a wholly-owned consolidated bankruptcy-remote special purpose subsidiary, which in turn sells such receivables to a third-party commercial paper conduit. Receivables of $92 were sold under this revolving facility program in the three months ended March 31, 2012.
The agreements involve the sale of entire groups of accounts receivable for cash. In certain instances a portion of the sales proceeds are held back by the purchaser and payment is deferred until collection of the related receivables sold. Such holdbacks are not considered legal securities nor are they certificated. We report collections on such receivables as operating cash flows in the Condensed Consolidated Statements of Cash Flows because such receivables are the result of an operating activity and the associated interest rate risk is de minimis due to its short-term nature. These receivables are included in the caption “Other current assets” in the accompanying Condensed Consolidated Balance Sheets and were $148 and $97 at March 31, 2012 and December 31, 2011, respectively. The balance at March 31, 2012 includes receivables of $41 held by the bankruptcy-remote subsidiary, noted in the revolving arrangement above, which are not available to satisfy any of our creditor obligations.
Under most of the agreements, we continue to service the sold accounts receivable. When applicable, a servicing liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability were not material. Of the accounts receivable sold and derecognized from our Balance Sheet, $809 and $815 remained uncollected as of March 31, 2012 and December 31, 2011, respectively. Accounts receivables sales were as follows:
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Accounts receivable sales | $ | 875 | $ | 730 | |||
Deferred proceeds | 147 | 94 | |||||
Fees associated with sales | 6 | 4 | |||||
Estimated decrease to operating cash flows(1) | (68 | ) | (24 | ) | |||
____________________________
(1) | Represents the difference between current and prior period receivable sales adjusted for the effects of: (i) the deferred proceeds, (ii) collections prior to the end of the quarter and (iii) currency. |
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Finance Receivables – Allowance for Credit Losses and Credit Quality
Finance receivables include sales-type leases, direct financing leases and installment loans. Our finance receivable portfolios are primarily in the U.S., Canada and Europe. We generally establish customer credit limits and estimate the allowance for credit losses on a country or geographic basis. Our policy and methodology used to establish our allowance for doubtful accounts has been consistently applied over all periods presented.
The following table is a rollforward of the allowance for doubtful finance receivables as well as the related investment in finance receivables:
United States | Canada | Europe | Other(3) | Total | |||||||||||||||
Allowance for Credit Losses: | |||||||||||||||||||
Balance at December 31, 2011 | $ | 75 | $ | 33 | $ | 91 | $ | 2 | $ | 201 | |||||||||
Provision | 2 | 1 | 12 | — | 15 | ||||||||||||||
Charge-offs | (4 | ) | (3 | ) | (12 | ) | — | (19 | ) | ||||||||||
Recoveries and other(1) | 1 | 2 | 2 | 1 | 6 | ||||||||||||||
Balance at March 31, 2012 | 74 | 33 | 93 | 3 | 203 | ||||||||||||||
Finance receivables as of March 31, 2012 collectively evaluated for impairment(2) | $ | 2,889 | $ | 829 | $ | 2,614 | $ | 136 | $ | 6,468 | |||||||||
Allowance for Credit Losses: | |||||||||||||||||||
Balance at December 31, 2010 | $ | 91 | $ | 37 | $ | 81 | $ | 3 | $ | 212 | |||||||||
Provision | 7 | 4 | 11 | — | 22 | ||||||||||||||
Charge-offs | (10 | ) | (5 | ) | (8 | ) | — | (23 | ) | ||||||||||
Recoveries and other(1) | (1 | ) | 2 | 3 | — | 4 | |||||||||||||
Balance at March 31, 2011 | 87 | 38 | 87 | 3 | 215 | ||||||||||||||
Finance receivables as of March 31, 2011 collectively evaluated for impairment(2) | $ | 3,074 | $ | 874 | $ | 2,865 | $ | 76 | $ | 6,889 | |||||||||
_____________________________
(1) | Includes the impacts of foreign currency translation and adjustments to reserves necessary to reflect events of non-payment such as customer accommodations and contract terminations. |
(2) | Total Finance receivables exclude residual values of $5 and $11, and the allowance for credit losses of $203 and $215 at March 31, 2012 and 2011, respectively. |
(3) | Includes developing market countries and smaller units. |
We evaluate our customers based on the following credit quality indicators:
• | Investment grade: This rating includes accounts with excellent to good business credit, asset quality and the capacity to meet financial obligations. These customers are less susceptible to adverse effects due to shifts in economic conditions or changes in circumstance. The rating generally equates to a Standard & Poors (S&P) rating of BBB- or better. Loss rates in this category are normally minimal at less than 1%. |
• | Non-investment grade: This rating includes accounts with average credit risk that are more susceptible to loss in the event of adverse business or economic conditions. This rating generally equates to a BB S&P rating. Although we experience higher loss rates associated with this customer class, we believe the risk is somewhat mitigated by the fact that our leases are fairly well dispersed across a large and diverse customer base. In addition, the higher loss rates are largely offset by the higher rates of return we obtain on such leases. Loss rates in this category are generally in the range of 2% to 4%. |
• | Substandard: This rating includes accounts that have marginal credit risk such that the customer’s ability to make repayment is impaired or may likely become impaired. We use numerous strategies to mitigate risk including higher rates of interest, prepayments, personal guarantees and etc. Accounts in this category include customers who were downgraded during the term of the lease from investment and non-investment grade status when the lease was originated. Accordingly, there is a distinct possibility for a loss of principal and interest or customer default. The loss rates in this category are around 10%. |
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Credit quality indicators are updated at least annually and the credit quality of any given customer can change during the life of the portfolio. Details about our finance receivables portfolio based on industry and credit quality indicators are as follows:
March 31, 2012 | |||||||||||||||
Investment Grade | Non-investment Grade | Substandard | Total Finance Receivables | ||||||||||||
Finance and Other Services | $ | 346 | $ | 364 | $ | 144 | $ | 854 | |||||||
Government and Education | 784 | 22 | 4 | 810 | |||||||||||
Graphic Arts | 123 | 192 | 171 | 486 | |||||||||||
Industrial | 171 | 84 | 31 | 286 | |||||||||||
Healthcare | 120 | 49 | 26 | 195 | |||||||||||
Other | 89 | 106 | 63 | 258 | |||||||||||
Total United States | 1,633 | 817 | 439 | 2,889 | |||||||||||
Finance and Other Services | 153 | 113 | 51 | 317 | |||||||||||
Government and Education | 121 | 10 | 4 | 135 | |||||||||||
Graphic Arts | 39 | 39 | 35 | 113 | |||||||||||
Industrial | 59 | 42 | 33 | 134 | |||||||||||
Other | 75 | 44 | 11 | 130 | |||||||||||
Total Canada | 447 | 248 | 134 | 829 | |||||||||||
France | 242 | 360 | 89 | 691 | |||||||||||
U.K./Ireland | 208 | 163 | 58 | 429 | |||||||||||
Central(1) | 332 | 480 | 59 | 871 | |||||||||||
Southern(2) | 214 | 246 | 61 | 521 | |||||||||||
Nordics(3) | 65 | 34 | 3 | 102 | |||||||||||
Total Europe | 1,061 | 1,283 | 270 | 2,614 | |||||||||||
Other | 97 | 32 | 7 | 136 | |||||||||||
Total | $ | 3,238 | $ | 2,380 | $ | 850 | $ | 6,468 | |||||||
December 31, 2011 | |||||||||||||||
Investment Grade | Non-investment Grade | Substandard | Total Finance Receivables | ||||||||||||
Finance and Other Services | $ | 349 | $ | 380 | $ | 160 | $ | 889 | |||||||
Government and Education | 821 | 20 | 4 | 845 | |||||||||||
Graphic Arts | 126 | 200 | 172 | 498 | |||||||||||
Industrial | 180 | 83 | 32 | 295 | |||||||||||
Healthcare | 130 | 42 | 28 | 200 | |||||||||||
Other | 97 | 93 | 76 | 266 | |||||||||||
Total United States | 1,703 | 818 | 472 | 2,993 | |||||||||||
Finance and Other Services | 153 | 118 | 51 | 322 | |||||||||||
Government and Education | 121 | 9 | 4 | 134 | |||||||||||
Graphic Arts | 36 | 39 | 35 | 110 | |||||||||||
Industrial | 56 | 41 | 34 | 131 | |||||||||||
Other | 74 | 42 | 12 | 128 | |||||||||||
Total Canada | 440 | 249 | 136 | 825 | |||||||||||
France | 246 | 354 | 92 | 692 | |||||||||||
U.K./Ireland | 201 | 162 | 54 | 417 | |||||||||||
Central(1) | 330 | 494 | 57 | 881 | |||||||||||
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Southern(2) | 219 | 256 | 63 | 538 | |||||||||||
Nordics(3) | 60 | 39 | 3 | 102 | |||||||||||
Total Europe | 1,056 | 1,305 | 269 | 2,630 | |||||||||||
Other | 75 | 26 | 7 | 108 | |||||||||||
Total | $ | 3,274 | $ | 2,398 | $ | 884 | $ | 6,556 | |||||||
_____________________________
(1) | Switzerland, Germany, Austria, Belgium and Holland. |
(2) | Italy, Greece, Spain and Portugal. |
(3) | Sweden, Norway, Denmark and Finland. |
The aging of our billed finance receivables is based upon the number of days an invoice is past due and is as follows:
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March 31, 2012 | |||||||||||||||||||||||||||
Current | 31-90 Days Past Due | >90 Days Past Due | Total Billed Finance Receivables | Unbilled Finance Receivables | Total Finance Receivables | Finance Receivables >90 Days and Accruing | |||||||||||||||||||||
Finance and Other Services | $ | 14 | $ | 4 | $ | 2 | $ | 20 | $ | 834 | $ | 854 | $ | 22 | |||||||||||||
Government and Education | 18 | 6 | 4 | 28 | 782 | 810 | 52 | ||||||||||||||||||||
Graphic Arts | 13 | 2 | 1 | 16 | 470 | 486 | 13 | ||||||||||||||||||||
Industrial | 7 | 2 | 1 | 10 | 276 | 286 | 10 | ||||||||||||||||||||
Healthcare | 4 | 2 | 1 | 7 | 188 | 195 | 9 | ||||||||||||||||||||
Other | 6 | 1 | — | 7 | 251 | 258 | 6 | ||||||||||||||||||||
Total United States | 62 | 17 | 9 | 88 | 2,801 | 2,889 | 112 | ||||||||||||||||||||
Canada | 3 | 3 | 1 | 7 | 822 | 829 | 26 | ||||||||||||||||||||
France | 1 | 1 | 1 | 3 | 688 | 691 | 13 | ||||||||||||||||||||
U.K./Ireland | 5 | 1 | 3 | 9 | 420 | 429 | 4 | ||||||||||||||||||||
Central(1) | 4 | 3 | 4 | 11 | 860 | 871 | 53 | ||||||||||||||||||||
Southern(2) | 21 | 10 | 12 | 43 | 478 | 521 | 83 | ||||||||||||||||||||
Nordics(3) | 1 | — | — | 1 | 101 | 102 | — | ||||||||||||||||||||
Total Europe | 32 | 15 | 20 | 67 | 2,547 | 2,614 | 153 | ||||||||||||||||||||
Other | 3 | — | — | 3 | 133 | 136 | 1 | ||||||||||||||||||||
Total | $ | 100 | $ | 35 | $ | 30 | $ | 165 | $ | 6,303 | $ | 6,468 | $ | 292 | |||||||||||||
December 31, 2011 | |||||||||||||||||||||||||||
Current | 31-90 Days Past Due | >90 Days Past Due | Total Billed Finance Receivables | Unbilled Finance Receivables | Total Finance Receivables | Finance Receivables >90 Days and Accruing | |||||||||||||||||||||
Finance and Other Services | $ | 18 | $ | 4 | $ | 1 | $ | 23 | $ | 866 | $ | 889 | $ | 15 | |||||||||||||
Government and Education | 21 | 5 | 2 | 28 | 817 | 845 | 29 | ||||||||||||||||||||
Graphic Arts | 16 | 2 | 1 | 19 | 479 | 498 | 7 | ||||||||||||||||||||
Industrial | 7 | 2 | 1 | 10 | 285 | 295 | 6 | ||||||||||||||||||||
Healthcare | 5 | 2 | — | 7 | 193 | 200 | 5 | ||||||||||||||||||||
Other | 8 | 1 | — | 9 | 257 | 266 | 4 | ||||||||||||||||||||
Total United States | 75 | 16 | 5 | 96 | 2,897 | 2,993 | 66 | ||||||||||||||||||||
Canada | 3 | 2 | 1 | 6 | 819 | 825 | 27 | ||||||||||||||||||||
France | 1 | 1 | 1 | 3 | 689 | 692 | 16 | ||||||||||||||||||||
U.K./Ireland | 3 | 2 | 3 | 8 | 409 | 417 | 4 | ||||||||||||||||||||
Central(1) | 7 | 2 | 3 | 12 | 869 | 881 | 46 | ||||||||||||||||||||
Southern(2) | 31 | 4 | 13 | 48 | 490 | 538 | 82 | ||||||||||||||||||||
Nordics(3) | 1 | — | — | 1 | 101 | 102 | — | ||||||||||||||||||||
Total Europe | 43 | 9 | 20 | 72 | 2,558 | 2,630 | 148 | ||||||||||||||||||||
Other | 2 | 1 | — | 3 | 105 | 108 | — | ||||||||||||||||||||
Total | $ | 123 | $ | 28 | $ | 26 | $ | 177 | $ | 6,379 | $ | 6,556 | $ | 241 | |||||||||||||
_____________________________
(1) | Switzerland, Germany, Austria, Belgium and Holland. |
(2) | Italy, Greece, Spain and Portugal. |
(3) | Sweden, Norway, Denmark and Finland. |
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Note 6 – Inventories
The following is a summary of Inventories by major category:
March 31, 2012 | December 31, 2011 | ||||||
Finished goods | $ | 897 | $ | 866 | |||
Work-in-process | 56 | 58 | |||||
Raw materials | 112 | 97 | |||||
Total Inventories | $ | 1,065 | $ | 1,021 | |||
Note 7 – Investment in Affiliates, at Equity
Our equity in net income of our unconsolidated affiliates was as follows:
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Fuji Xerox | $ | 37 | $ | 31 | |||
Other investments | 3 | 3 | |||||
Total Equity in Net Income of Unconsolidated Affiliates | $ | 40 | $ | 34 | |||
Fuji Xerox
Equity in net income of Fuji Xerox is affected by certain adjustments required to reflect the deferral of profit associated with intercompany sales. These adjustments may result in recorded equity income that is different from that implied by our 25% ownership interest. Equity income for the three months ended March 31, 2012 and 2011 includes after-tax restructuring charges of $4 and $11, respectively, primarily reflecting Fuji Xerox’s continued cost-reduction initiatives.
Condensed financial data of Fuji Xerox was as follows:
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Summary of Operations: | |||||||
Revenues | $ | 3,330 | $ | 3,092 | |||
Costs and expenses | 3,084 | 2,897 | |||||
Income before income taxes | 246 | 195 | |||||
Income tax expense | 97 | 60 | |||||
Net Income | 149 | 135 | |||||
Less: Net income – noncontrolling interests | 1 | 1 | |||||
Net Income – Fuji Xerox | $ | 148 | $ | 134 | |||
Weighted Average Rate(1) | 79.72 | 82.12 | |||||
_____________________________
(1) | Represents Yen/U.S. Dollar exchange rate used to translate. |
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Note 8 – Restructuring Programs
During the first quarter 2012, we recorded net restructuring and asset impairment charges of $17, which included approximately $22 of severance costs related to headcount reductions of approximately 500 employees primarily in North America, and $2 of asset impairment charges. These costs were partially offset by $7 of net reversals for changes in estimated reserves from prior period initiatives.
Information related to restructuring program activity during the three months ended March 31, 2012 is outlined below:
Severance and Related Costs | Lease Cancellation and Other Costs | Asset Impairments(2) | Total | ||||||||||||
Balance December 31, 2011 | $ | 116 | $ | 7 | $ | — | $ | 123 | |||||||
Restructuring provision | 22 | — | 2 | 24 | |||||||||||
Reversals of prior accruals | (7 | ) | — | — | (7 | ) | |||||||||
Net current period charges(1) | 15 | — | 2 | 17 | |||||||||||
Charges against reserve and currency | (37 | ) | — | (2 | ) | (39 | ) | ||||||||
Balance March 31, 2012 | $ | 94 | $ | 7 | $ | — | $ | 101 | |||||||
_____________________________
(1) | Represents net amount recognized within the Condensed Consolidated Statements of Income for the period shown. |
(2) | Charges associated with asset impairments represent the write-down of the related assets to their new cost basis and are recorded concurrently with the recognition of the provision. |
Reconciliation to the Condensed Consolidated Statements of Cash Flows:
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Charges against reserve | $ | (39 | ) | $ | (53 | ) | |
Asset impairment | 2 | — | |||||
Effects of foreign currency and other non-cash items | (2 | ) | (4 | ) | |||
Cash Payments for Restructurings | $ | (39 | ) | $ | (57 | ) | |
The following table summarizes the total amount of costs incurred in connection with these restructuring programs by segment:
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Services | $ | 3 | $ | (1 | ) | ||
Technology | 17 | (12 | ) | ||||
Other | (3 | ) | (2 | ) | |||
Total Net Restructuring Charges | $ | 17 | $ | (15 | ) | ||
We expect to incur additional restructuring charges of approximately $20 to $40 in the second quarter 2012 for actions and initiatives which have not yet been finalized. The additional restructuring actions are related to continuing cost-reduction activities and productivity improvements.
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Note 9 – Debt
Debt Exchange
In February 2012, we completed an exchange of our 5.71% Zero Coupon Notes due 2023 with an accreted book value at the date of the exchange of $303, for $362 of our 4.50% Senior Notes due 2021. Accordingly, this increased the principal amount for our 4.50% Senior Notes due 2021 from $700 to $1,062. The exchange was conducted to retire high-interest, long-dated debt in a favorable interest rate environment. The debt exchange was accounted for as a non-revolving debt modification and, therefore, it did not result in any gain or loss. The difference between the book value of our Zero Coupon Notes and the principal value of the Senior Notes issued in exchange will be accreted over the remaining term of the Senior Notes. Upfront fees paid to third parties in connection with the exchange were not material and were expensed as incurred.
Senior Notes
In March 2012, we issued $600 of Floating Rate Senior Notes due 2013 (the “2013 Floating Rate Notes”) and $500 of 2.95% Senior Notes due 2017 (the “2017 Senior Notes”). The 2013 Floating Rate Notes were issued at par and the 2017 Senior Notes were issued at 99.875% of par, resulting in aggregate net proceeds for both notes of approximately $1,093. The 2013 Floating Rate Notes accrue interest at a rate per annum, reset quarterly, equal to the three-month LIBOR plus 1.400% and are payable quarterly. The 2017 Senior Notes accrue interest at a rate of 2.95% per annum and are payable semi-annually. As a result of the discount, they have a weighted average effective interest rate of 2.977%. In conjunction with the issuance of these Senior Notes, debt issuance costs of $6 were deferred. This debt issuance partially pre-funds the May 2012 maturity of our $1,100 of 5.59% Senior Notes.
Note 10 – Interest Expense and Income
Interest expense and interest income were as follows:
Three Months Ended March 31, | |||||||
2012 | 2011 | ||||||
Interest expense(1) | $ | 109 | $ | 127 | |||
Interest income(2) | 151 | 169 | |||||
_____________________________
(1) | Includes Equipment financing interest, as well as non-financing interest expense that is included in Other expenses, net in the Condensed Consolidated Statements of Income. |
(2) | Includes Finance income, as well as other interest income that is included in Other expenses, net in the Condensed Consolidated Statements of Income. |
Note 11 – Financial Instruments
Interest Rate Risk Management
We use interest rate swap agreements to manage our interest rate exposure and to achieve a desired proportion of variable and fixed rate debt. These derivatives may be designated as fair value hedges or cash flow hedges depending on the nature of the risk being hedged.
Fair Value Hedges
At March 31, 2012 and December 31, 2011, we did not have any interest rate swaps outstanding.
Foreign Exchange Risk Management
We are a global company that is exposed to foreign currency exchange rate fluctuations in the normal course of our business. As a part of our foreign exchange risk management strategy, we use derivative instruments, primarily forward contracts and purchase option contracts, to hedge the following foreign currency exposures, thereby reducing volatility of earnings or protecting fair values of assets and liabilities:
• | Foreign currency-denominated assets and liabilities |
• | Forecasted purchases and sales in foreign currency |
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Summary of Foreign Exchange Hedging Positions
At March 31, 2012, we had outstanding forward exchange and purchased option contracts with gross notional values of $4,041, which is reflective of the amounts that are normally outstanding at any point during the year. Approximately 80% of these contracts mature within three months, 10% in three to six months and 10% in six to twelve months.
The following is a summary of the primary hedging positions and corresponding fair values as of March 31, 2012:
Currency Hedged (Buy/Sell) | Gross Notional Value | Fair Value Asset (Liability)(1) | |||||
Japanese Yen/U.S. Dollar | $ | 618 | $ | (19 | ) | ||
Euro/U.K. Pound Sterling | 616 | (11 | ) | ||||
Japanese Yen/Euro | 546 | (17 | ) | ||||
U.S. Dollar/Euro | 525 | — | |||||
U.K. Pound Sterling/U.S. Dollar | 217 | — | |||||
U.S. Dollar/U.K. Pound Sterling | 196 | (5 | ) | ||||
Canadian Dollar/Euro | 174 | (1 | ) | ||||
U.K. Pound Sterling/Euro | 171 | 1 | |||||
Euro/Swiss Franc | 122 | — | |||||
Swiss Franc/Euro | 95 | — | |||||
Swedish Krona/Euro | 89 | — | |||||
Euro/Swedish Krona | 77 | (1 | ) | ||||
Mexican Peso/U.S. Dollar | 60 | (1 | ) | ||||
Euro/Japanese Yen | 54 | 1 | |||||
Euro/Norwegian Krone | 50 | — | |||||
U.S. Dollar/Japanese Yen | 46 | — | |||||
Indian Rupee/U.S. Dollar | 46 | (3 | ) | ||||
Euro/Danish Krone | 45 | — | |||||
All Other | 294 | 1 | |||||
Total Foreign Exchange Hedging | $ | 4,041 | $ | (55 | ) | ||
_____________________________
(1) | Represents the net receivable (payable) amount included in the Condensed Consolidated Balance Sheet at March 31, 2012. |
Foreign Currency Cash Flow Hedges
We designate a portion of our foreign currency derivative contracts as cash flow hedges of our foreign currency-denominated inventory purchases, sales and expenses. No amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or loss was included in the assessment of hedge effectiveness. The net (liability) asset fair value of these contracts was $(27) and $26 as of March 31, 2012 and December 31, 2011, respectively.
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Summary of Derivative Instruments Fair Value
The following table provides a summary of the fair value amounts of our derivative instruments:
Designation of Derivatives | Balance Sheet Location | March 31, 2012 | December 31, 2011 | |||||||
Derivatives Designated as Hedging Instruments | ||||||||||
Foreign exchange contracts – forwards | Other current assets | $ | 10 | $ | 37 | |||||
Other current liabilities | (37 | ) | (11 | ) | ||||||
Net Designated (Liability)Asset | $ | (27 | ) | $ | 26 | |||||
Derivatives NOT Designated as Hedging Instruments | ||||||||||
Foreign exchange contracts – forwards | Other current assets | $ | 5 | $ | 21 | |||||
Other current liabilities | (33 | ) | (20 | ) | ||||||
Net Undesignated (Liability) Asset | $ | (28 | ) | $ | 1 | |||||
Summary of Derivatives | Total Derivative Assets | $ | 15 | $ | 58 | |||||
Total Derivative Liabilities | (70 | ) | (31 | ) | ||||||
Net Derivative (Liability) Asset | $ | (55 | ) | $ | 27 | |||||
Summary of Derivative Instruments Gains (Losses)
Derivative gains and (losses) affect the income statement based on whether such derivatives are designated as hedges of underlying exposures. The following is a summary of derivative gains and (losses).
Designated Derivative Instruments Gains (Losses)
The following tables provide a summary of gains (losses) on derivative instruments:
Derivatives in Fair Value Relationships | Location of Gain (Loss) Recognized in Income | Derivative Gain (Loss) Recognized in Income Three Months Ended March 31, | Hedged Item Gain (Loss) Recognized in Income Three Months Ended March 31 | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Interest rate contracts | Interest expense | $ | — | $ | (1 | ) | $ | — | $ | 1 | ||||||||
Derivatives in Cash Flow Hedging Relationships | Derivative Gain (Loss) Recognized in OCI (Effective Portion) Three Months Ended March 31, | Location of Derivative Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Gain (Loss) Reclassified from AOCI to Income (Effective Portion) Three Months Ended March 31, | |||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||||
Foreign exchange contracts – forwards | $ | (44 | ) | $ | (27 | ) | Cost of sales | $ | 16 | $ | 3 | |||||||
No amount of ineffectiveness was recorded in the Condensed Consolidated Statements of Income for these designated cash flow hedges and all components of each derivative’s gain or (loss) was included in the assessment of hedge effectiveness. In addition, no amount was recorded for an underlying exposure that did not occur or was not expected to occur.
At March 31, 2012, net losses of $18 were recorded in accumulated other comprehensive loss associated with our cash flow hedging activity. The entire balance is expected to be reclassified into net income within the next 12 months, providing an offsetting economic impact against the underlying anticipated transactions.
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Non-Designated Derivative Instruments Gains (Losses)
Non-designated derivative instruments are primarily instruments used to hedge foreign currency-denominated assets and liabilities. They are not designated as hedges since there is a natural offset for the re-measurement of the underlying foreign currency-denominated asset or liability.
The following table provides a summary of gains (losses) on non-designated derivative instruments:
Derivatives NOT Designated as Hedging Instruments | Three Months Ended March 31, | |||||||||
Location of Derivative Gain (Loss) | 2012 | 2011 | ||||||||
Foreign exchange contracts – forwards | Other expense – Currency gains (losses), net | $ | (18 | ) | $ | (31 | ) | |||
During the three months ended March 31, 2012 and 2011, we recorded Currency losses, net of $0 and $1, respectively. Currency losses, net includes the mark-to-market adjustments of the derivatives not designated as hedging instruments and the related cost of those derivatives, as well as the re-measurement of foreign currency-denominated assets and liabilities.
Note 12 – Fair Value of Financial Assets and Liabilities
The following table represents assets and liabilities measured at fair value on a recurring basis. The basis for the measurement at fair value in all cases is Level 2 – Significant Other Observable Inputs.
March 31, 2012 | December 31, 2011 | ||||||
Assets: | |||||||
Foreign exchange contracts-forwards | $ | 15 | $ | 58 | |||
Deferred compensation investments in cash surrender life insurance | 74 | 69 | |||||
Deferred compensation investments in mutual funds | 23 | 23 | |||||
Total | $ | 112 | $ | 150 | |||
Liabilities: | |||||||
Foreign exchange contracts-forwards | $ | 70 | $ | 31 | |||
Deferred compensation plan liabilities | 104 | 97 | |||||
Total | $ | 174 | $ | 128 | |||
We utilize the income approach to measure the fair value for our derivative assets and liabilities. The income approach uses pricing models that rely on market observable inputs such as yield curves, currency exchange rates and forward prices, and therefore are classified as Level 2.
Fair value for our deferred compensation plan investments in Company-owned life insurance is reflected at cash surrender value. Fair value for our deferred compensation plan investments in mutual funds is based on quoted market prices for actively traded investments similar to those held by the plan. Fair value for deferred compensation plan liabilities is based on the fair value of investments corresponding to employees’ investment selections, based on quoted prices for similar assets in actively traded markets.
Summary of Other Financial Assets and Liabilities Not Measured at Fair Value on a Recurring Basis
The estimated fair values of our other financial assets and liabilities not measured at fair value on a recurring basis were as follows:
March 31, 2012 | December 31, 2011 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Cash and cash equivalents | $ | 1,514 | $ | 1,514 | $ | 902 | $ | 902 | |||||||
Accounts receivable, net | 2,909 | 2,909 | 2,600 | 2,600 | |||||||||||
Short-term debt | 1,145 | 1,136 | 1,545 | 1,622 | |||||||||||
Long-term debt | 8,483 | 9,022 | 7,088 | 7,497 | |||||||||||
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The fair value amounts for Cash and cash equivalents and Accounts receivable, net, approximate carrying amounts due to the short maturities of these instruments. The fair value of Short- and Long-term debt was estimated based on quoted market prices for publicly-traded securities or on the current rates offered to us for debt of similar maturities. The difference between the fair value and the carrying value represents the theoretical net premium or discount we would pay or receive to retire all debt at such date.
Note 13 – Employee Benefit Plans
The components of Net periodic benefit cost and other changes in plan assets and benefit obligations were as follows:
Pension Benefits | Retiree Health | ||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Components of Net Periodic Benefit Costs: | |||||||||||||||
Service cost | $ | 51 | $ | 48 | $ | 2 | $ | 2 | |||||||
Interest cost | 115 | 118 | 11 | 12 | |||||||||||
Expected return on plan assets | (129 | ) | (127 | ) | — | — | |||||||||
Recognized net actuarial loss | 27 | 17 | — | — | |||||||||||
Amortization of prior service credit | (6 | ) | (6 | ) | (10 | ) | (10 | ) | |||||||
Recognized settlement loss | 16 | 30 | — | — | |||||||||||
Defined benefit plans | 74 | 80 | 3 | 4 | |||||||||||
Defined contribution plans | 16 | 16 | — | — | |||||||||||
Net periodic benefit cost | 90 | 96 | 3 | 4 | |||||||||||
Other changes in plan assets and benefit obligations recognized in Other Comprehensive Income: | |||||||||||||||
Net actuarial gain | (1 | ) | — | — | — | ||||||||||
Amortization of net prior service credit | 6 | 6 | 10 | 10 | |||||||||||
Amortization of net actuarial losses | (43 | ) | (47 | ) | — | — | |||||||||
Total recognized in Other Comprehensive Income(1) | (38 | ) | (41 | ) | 10 | 10 | |||||||||
Total recognized in Net Periodic Benefit Cost and Other Comprehensive Income | $ | 52 | $ | 55 | $ | 13 | $ | 14 | |||||||
_____________________________
(1) | Amounts represent the pre-tax effect included within Other comprehensive income. Refer to Note 15 - Comprehensive Income for related tax effects and the after-tax amounts. |
Contributions: During the three months ended March 31, 2012, we made cash contributions of $79 and $12 to our defined benefit plans and our other post-retirement benefit plans, respectively. In March 2012, we also elected to make a contribution of 15.4 million shares of our common stock, with an aggregate value of approximately $130 to our U.S. defined benefit pension plan for salaried employees in order to meet our planned level of funding. We presently anticipate additional cash contributions of $351 to our defined benefit pension plans and $68 to our other post-retirement benefit plans in 2012 for a total cash contribution of $430 ($560 total cash and stock contribution) and $80, respectively.
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Note 14 – Shareholders’ Equity
Common Stock | Additional Paid-in Capital | Treasury Stock | Retained Earnings | AOCL(1) | Xerox Shareholders’ Equity | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||
Balance at December 31, 2011 | $ | 1,353 | $ | 6,317 | $ | (124 | ) | $ | 7,046 | $ | (2,716 | ) | $ | 11,876 | $ | 149 | $ | 12,025 | |||||||||||||
Comprehensive income, net | — | — | — | 269 | 62 | 331 | 8 | 339 | |||||||||||||||||||||||
Cash dividends declared-common stock(2) | — | — | — | (59 | ) | — | (59 | ) | — | (59 | ) | ||||||||||||||||||||
Cash dividends declared-preferred stock(3) | — | — | — | (6 | ) | — | (6 | ) | — | (6 | ) | ||||||||||||||||||||
Contribution of common stock to U.S. pension plan(4) | 15 | 115 | — | — | — | 130 | — | 130 | |||||||||||||||||||||||
Stock option and incentive plans | 1 | 37 | — | — | — | 38 | — | 38 | |||||||||||||||||||||||
Tax loss on stock option and incentive plans, net | — | (1 | ) | — | — | — | (1 | ) | — | (1 | ) | ||||||||||||||||||||
Payments to acquire treasury stock, including fees | — | — | (50 | ) | — | — | (50 | ) | — | (50 | ) | ||||||||||||||||||||
Cancellation of treasury stock | (21 | ) | (150 | ) | 171 | — | — | — | — | — | |||||||||||||||||||||
Distributions to noncontrolling interests | — | — | — | — | — | — | (25 | ) | (25 | ) | |||||||||||||||||||||
Balance at March 31, 2012 | $ | 1,348 | $ | 6,318 | $ | (3 | ) | $ | 7,250 | $ | (2,654 | ) | $ | 12,259 | $ | 132 | $ | 12,391 | |||||||||||||