Analyzing and interpreting income components and disclosures.

The income statement for Xerox Corporation follows:

Year ended December 31 (in millions)	2010	2009	2008
Revenue
Equipment sales	3,857	3,550	4,679
Supplies, paper and other	3,377	3,096	3,646
Sales	7,234	6,646	8,325
Service, outsourcing and rentals	13,739	7,820	8,485
Finance income	660	713	798
Total Revenues	21,633	15,179	17,608
Costs and Expenses
Cost of sales	4,741	4,395	5,519
Cost of service outsourcing and rentals	9,195	4,488	4,929
Equipment financial interest	246	271	305
Research, development and engineering expenses	781	840	884
Selling, administrative and general expenses	4,594	4,149	4,534
Restructuring and asset impairment charges	483	(8)	429
Acquisition-related costs	77	72	--
Amortization of intangible assets	312	60	54
Other expenses, net	389	285	1,033
Total Costs and Expenses	20,818	14,552	17,687
Income (Loss) before Income Taxes, and Equity Income	815	627	(79)
Income tax expense (benefit).	256	152	(231)
Equity in net income of unconsolidated affiliates	78	41	113
Net income	637	516	265
Less: Net income attributable to noncontrolling interests	31	31	35
Net income Attributable to Xerox	606	485	230

Notes:

The income statement includes sales of Xerox copiers and revenue earned by a finance subsidiary that provides loan and lease financing relating to the sales of those copiers.

Equity in net income of unconsolidated affiliates refers to income Xerox has earned on investments in affiliated (but unconsolidated) companies.

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 Service, outsourcing and rentals. Hint: Scale each type of revenue by Total revenue. Which type of revenue grew more in 2010?

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. What might explain the change in 2010?

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 the $(8) expense in 2009 imply about one or more previous year's accruals?

e. Xerox reports $389 million in expenses in 2010 labeled as "Other expenses, net." How can a company use such an account to potentially obscure its actual financial performance?