The income statement for Xerox Corporation follows.

Required

a. Xerox reports several sources of income. How should revenue be recognized for each of these business activities? Explain.

b. Compute the relative size of sales revenue (total) and of revenue from outsourcing, service and rentals. Hint: Scale each type of revenue by total revenue. What observations can be made about the different sources of revenue?

c. Xerox reports research, development and engineering expenses (R\&D) each year. Compare R\&D spending over the three years. Hint: Scale R\&D by total revenue each year.

d. Xerox reports restructuring costs each year. (1) Describe the three typical categories of restructuring costs and the accounting for each. (2) How do you recommend treating these costs for analysis purposes? (3) Should regular recurring restructuring costs be treated differently than isolated occurrences of such costs for analysis purposes? (4) What does a (negative) expense imply about one or more previous year's accruals?

e. Xerox reports \$256 million in expenses in 2012 labeled as "Other expenses, net." How can a company use such an account to potentially obscure its actual financial performance?

Transcribed Image Text:

Year Ended December 31 (in millions, except per-share data) Revenues Sales.... Outsourcing, service and rentals Finance income. Total Revenues.. Costs and expenses Cost of sales...... Cost of outsourcing, service and rentals.. Equipment financing interest ..... Research, development and engineering expenses Selling, administrative and general expenses Restructuring and asset impairment charges Acquisition-related costs... Amortization of intangible assets. Curtailment gain.... Other expenses, net.. Total costs and expenses.. .. Income before income taxes and equity income. Income tax expense...... Equity in net income of unconsolidated affiliates.. Net income.. Less: Net income attributable to noncontrolling interests Net income attributable to Xerox ... Basic earnings per share Diluted earnings per share. 2012 4,362 10,802 $6,578 $7,126 $7,234 15,215 14,868 597 632 22,390 22,626 198 655 4,288 153 328 - 256 2011 1,348 277 152 1,223 28 $ 1,195 $ 0.90 $ 0.88 4,697 10,269 231 721 4,497 33 21,042 21,061 1,565 386 149 398 (107) 322 1,328 33 2010 $ 1,295 $0.92 $0.90 13,739 660 21,633 4,741 9,195 246 781 4,594 483 77 312 - 389 20,818 815 256 78 637 $ 606 $ 0.44 $ 0.43 31