e11vk
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the fiscal year ended: December 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
from to
Commission File Number 1-4471
A. |
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Full title of the plan and address of the plan, if different from that of
the issuer named below: |
XEROX
CORPORATION SAVINGS PLAN
B. |
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Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office: |
XEROX CORPORATION
45 GLOVER
AVENUE
P.O. BOX
4505
NORWALK,
CT 06856-4505
REQUIRED INFORMATION
Xerox
Corporation Savings Plan (the
Plan) is subject to the Employee Retirement Income Security Act of 1974
(ERISA). Therefore, in lieu of the requirements of Items 1-3 of Form 11-K, the
financial statements and schedule of the Plan at December 31,
2009 and 2008 and
for the year ended December 31, 2009, which have been prepared in accordance
with the financial reporting requirements of ERISA, are filed herewith as
Exhibit 99-1 and incorporated herein by reference.
EXHIBITS
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Exhibit Number |
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Description |
99-1
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Financial Statements and Schedule of the Plan at December
31, 2009 and 2008 and for the year ended December 31, 2009 |
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99-2
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Consent of Independent Registered Public Accounting Firm |
THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934,
the persons who administer the plan have duly caused this annual report to be
signed on its behalf by the undersigned hereunto duly authorized.
XEROX
CORPORATION SAVINGS PLAN
/S/LAWRENCE M. BECKER
LAWRENCE M. BECKER
CHAIRMAN, PLAN ADMINISTRATOR COMMITTEE
Norwalk, Connecticut
Date: June 15, 2010
exv99w1
Xerox Corporation Savings Plan
Financial Statements and Supplemental Schedule
To Accompany 2009 Form 5500
Annual Report of Employee Benefit Plan
Under ERISA of 1974
December 31, 2009 and 2008
Xerox Corporation Savings Plan
Index
December 31, 2009 and 2008
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1 |
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Financial Statements |
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2 |
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3 |
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4-26 |
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Supplemental Schedule |
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27 |
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Note: |
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Other schedules required by Section 2520.103-10 of the Department of Labors Rules and
Regulations for Reporting and Disclosure under ERISA have been omitted because they are
not applicable. |
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of the
Xerox Corporation Savings Plan
In our opinion, the accompanying statements of assets available for benefits and the related
statement of changes in assets available for benefits present fairly, in all material respects, the
assets available for benefits of Xerox Corporation Savings Plan (the Plan) at December 31, 2009
and 2008, and the changes in assets available for benefits for the year ended December 31, 2009 in
conformity with accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Plans management. Our responsibility is to
express an opinion on these financial statements based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements
taken as a whole. The supplemental schedule of assets (held at end of year) is presented for the
purpose of additional analysis and is not a required part of the basic financial statements but is
supplementary information required by the Department of Labors Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental
schedule is the responsibility of the Plans management. The supplemental schedule has been
subjected to the auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ PricewaterhouseCoopers LLP
Stamford, Connecticut
June 15, 2010
1
Xerox Corporation Savings Plan
Statements of Assets Available for Benefits
December 31, 2009 and 2008
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(in thousands) |
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2009 |
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2008 |
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ASSETS |
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Investment interest in Master Trust at fair value (Note 4) |
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$ |
3,998,947 |
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$ |
3,336,302 |
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Participant loans receivable, at fair value |
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72,906 |
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70,416 |
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Employer contributions receivable |
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12,454 |
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Employer settlement receivable (Note 11) |
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26,680 |
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Total assets |
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4,098,533 |
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3,419,172 |
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Adjustment from fair value to contract value for the |
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Master Trusts interest in collective trust relating to fully |
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benefit responsive investment contracts (Note 2) |
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16,923 |
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158,236 |
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Assets available for benefits |
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$ |
4,115,456 |
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$ |
3,577,408 |
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The accompanying notes are an integral part of these financial statements.
2
Xerox Corporation Savings Plan
Statement of Changes in Assets Available for Benefits
Year Ended December 31, 2009
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(in thousands) |
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Additions to assets attributed to |
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Contributions |
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Participant |
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$ |
142,156 |
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Employer |
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12,317 |
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Rollovers (from RIGP and ESOP) (Note 9) |
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36,601 |
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Rollovers |
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2,456 |
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Total contributions |
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193,530 |
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Employer settlement allocation (Note 11) |
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60,124 |
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Interest income on participant loans |
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4,802 |
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Transfers in from affiliated plan (Note 9) |
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293 |
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Net appreciation from plan interest in Master Trust,
net of administrative expenses |
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570,366 |
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Total additions |
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829,115 |
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Deductions from assets attributed to |
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Benefits paid to participants |
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288,971 |
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Administrative expenses |
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2,096 |
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Total deductions |
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291,067 |
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Net increase |
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538,048 |
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Assets available for benefits |
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Beginning of year |
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3,577,408 |
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End of year |
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$ |
4,115,456 |
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The accompanying notes are an integral part of these financial statements.
3
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
1. |
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Description of the Plan |
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The following description of the Xerox Corporation Savings Plan (the Plan) provides only
general information. The Plan is subject to the provisions of the Employee Retirement Income
Security Act (ERISA) of 1974. Participants should refer to the summary plan description
and the plan document for a more complete description of the Plans provisions. |
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General |
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The Plan is a defined contribution plan covering substantially all full and part-time U.S.
employees of Xerox Corporation (the Company) and participating subsidiaries, except those
covered by a collective bargaining agreement unless that agreement calls for participation in
the Plan. Employees are automatically eligible to participate in the Plan upon date of hire. |
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Contributions |
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Subject to limits imposed by the Internal Revenue Code (the Code), eligible employees may
contribute to the Plan up to 80% of pay (as defined in the Plan) through a combination of
before-tax and after-tax payroll deductions. Participants who are at least age 50 by the end
of the Plan year may make an additional catch-up contribution up to $5,500. Participants
direct the investment of their contributions into various investment options offered by the
Plan. |
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Effective April 1, 2009, the matching Company contribution was suspended |
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Prior to that period, for participants whose employment commencement date was prior to
January 1, 2005, the Company matched 50% of employee before-tax savings contributions (up to
6%), which equals a maximum match of 3% of annual pay up to the Internal Revenue Service
(IRS) 401 (k) elective deferral limit. |
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For participants whose employment commencement date was on or after January 1, 2005, the
Company matched 100% of employee before-tax savings contributions (up to 6%), which equals a
maximum match of 6% of annual pay up to the IRS 401 (k) elective deferral limit. |
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To be eligible to receive the matching Company contribution, the participant must be actively
employed on the last business day of the quarter (except by reason of death, retirement,
approved leave of absence, disability or layoff) in which the contribution is made by the
Company. |
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The matching Company contribution was reinstated effective January 1, 2010 at one-half of the
prior amount. For participants whose employment commencement date was prior to January 1,
2005, the Company will match 25% of employee before tax savings contributions (up to 6%).
For participants whose employment commencement date was on or after January 1, 2005, the
Company will match 50% of employee before tax savings contributions (up to 6%). |
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Vesting of Benefits |
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Participants are vested immediately in employee and employer contributions and actual
earnings thereon. |
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Payment of Benefits |
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Upon termination of service, a participant may elect to defer receipt of benefits or receive
a lump-sum amount equal to the value of his or her account. |
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Investment Options |
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Plan participants are able to direct the investment of their Plan holdings (employer and
employee contributions) into various investment options as offered under the Plan on a daily
basis. The |
4
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
investment options consist of 10 Lifecycle Funds, 13 Focused Strategy Funds that
include passively and actively managed options and the Company stock fund.
Participant Loans
Participants are permitted to borrow from their accounts subject to limitations set forth in
the Plan document. The loans are generally payable up to 4.5 years, except for loans to
secure a private residence which can be payable up to 14.5 years and bear interest at an
interest rate equal to the Citibank commercial prime rate as published in the Wall Street
Journal in effect on the 15th day of the month prior to the first day of the
quarter to which it is to apply, plus 1% as set forth on January 1, April 1, July 1, and
October 1 by the Plan administrator. Principal and interest payments on the loans are
re-deposited into the participants accounts, primarily made through payroll deductions,
based on their current investment allocation elections. Participants may not have more than
five loans outstanding at any one time and the balance of outstanding loans for any one
individual cannot exceed $50,000 or 50% of their vested account balance. Interest rates for
loans ranged from 4.25% to 10.50% at December 31, 2009 and 5.00% to 10.50% at December 31,
2008, with loans maturing at various dates through 2023.
Participant Accounts
Each participant account is credited with the participants contributions, the Companys
contributions and an allocation of Plan earnings (losses). Plan earnings (losses) are
allocated based on account balances by investment option. Expenses payable by the Plan are
charged to participant accounts.
Administration
The Plan administrator is appointed by the Vice President of Human Resources and is
responsible for the general administration of the Plan and for carrying out the Plan
provisions. The trustee of the Plan is State Street Bank and Trust Company (the Trustee).
Hewitt Associates is the record keeper of the Plan.
Plan Termination
The Plan was established with the expectation that it will continue indefinitely, however,
the Company reserves the right to amend or terminate the Plan.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States of America.
Benefit Payments
Benefit payments are recorded when paid.
Contributions
Employee contributions are recorded when withheld from participants pay. Employer
contributions are recorded on a quarterly basis.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and changes therein,
and disclosure of contingent assets and liabilities. Accordingly, actual results could
differ from those estimates.
5
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Basis of Presentation
The assets of the Plan are held in the Xerox Corporation Trust Agreement to Fund Retirement
Plans (the Master Trust). The value of the Plans interest in the Master Trust is based on
the beginning of year value of the Plans interest in the trust, plus actual contributions
and investment income (loss) based on participant account balances, less actual distributions
and allocated administrative expenses. For financial reporting purposes, income on Plan
assets and any realized or unrealized gains or losses on such assets and expenses in the
Master Trust are allocated to the Plan based on participant account balances.
The Master Trust holds assets for other Company-sponsored plans, some of which may be defined
contribution plans and some defined benefit plans. Because the Plans interest in the Master
Trust is based on participant investment options, there are certain Master Trust investments
in which the Plan does not invest.
Valuation of Investments and Income Recognition
The Plans investment in the Master Trust is recorded at an amount equal to the Plans
interest in the underlying investments of the Master Trust. Investments of the Master Trust
are stated at fair value. Shares of registered investment company funds are valued at the net
asset value as reported by the fund at year-end. Common and preferred stock are stated at
fair value based on published market closing prices. Investments in fixed income securities
are valued by a pricing service which determines valuations of normal institutionalized
trading units of such securities using methods based upon market transactions for comparable
securities and various relationships between securities which are generally recognized by
institutional traders, or at fair value as determined in good faith by the Trustee of the
Trust. The fair value of the common collective trusts are valued at the closing net asset
value on the last business day of the year. For those trusts recorded at contract value, the
fair value and contract value are based on the fair value and contract value of the
underlying investments in the trust. Limited partnerships are valued at estimated fair value
based on fair value as reported in the audited financial statements. Real estate trusts are
valued at estimated fair value based on information received from the investment advisor.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is
recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Participants
loans receivable are valued at cost which approximates fair value.
As described by Accounting Standards Codification (ASC) 946-210-45 through 946-210-55
(formerly referred to as Financial Accounting Standards Board Staff Position, FSP AAG INV-1,
Reporting of Fully Benefit-Responsive Investment Contacts Held by Certain Investment
Companies Subject to the AICPA Investment Company Audit Guide and Defined-Contribution Health
and Welfare and Pension Plans), collective trusts relating to fully benefit responsive
investment contracts held by a defined-contribution plan are to be reported at fair value.
However, contract value is the relevant measurement criteria for that portion of the net
assets available for benefits of a defined-contribution plan attributable to fully
benefit-responsive investment contracts because contract value is the amount participants
would receive if they were to initiate permitted transactions under the terms of the Plan.
As required by the ASC, the statements of assets available for benefits represent the fair
value of the Master Trusts investment in the collective trust and the adjustment from fair value to contract value. The statement of changes in assets
available for benefits is prepared on a contract value basis.
Administrative Expenses
Certain administrative expenses, such as Trustee, record keeping, and investment manager fees
are paid by the Master Trust and are netted against Master Trust investment income (loss).
Expenses paid by the Plan include legal and audit fees. Certain other administrative
expenses are paid by the Company.
6
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Risks and Uncertainties
Investments are exposed to various risks, such as interest rate and market risk. Due to the
risk associated with certain investments and the level of uncertainty related to changes in
the value of investments, it is at least reasonably possible that the changes in values of
investments in the near term could materially affect the amount reported in the statements of
assets available for benefits and the statement of changes in assets available for benefits.
The Plan invests a portion of its assets in securities with contractual cash flows, such as
asset backed securities, collateralized mortgage obligations and commercial mortgage backed
securities. The value, liquidity, and related income of these securities are sensitive to
changes in economic conditions, including real estate value, delinquencies and/or defaults
and may be adversely affected by shifts in the markets perception of the issuers and changes
in interest rates.
Recent Accounting Pronouncements
In 2009, the FASB issued Accounting Standards Update No. 2009-01, Generally Accepted
Accounting Principles (ASC Topic 105) which establishes the FASB Accounting Standards
Codification (the Codification or ASC) as the official single source of authoritative
U.S. generally accepted accounting principles (GAAP). All existing accounting standards are
superseded. All other accounting guidance not included in the Codification will be considered
non-authoritative. The Codification also includes all relevant Securities and Exchange
Commission (SEC) guidance organized using the same topical structure in separate sections
within the Codification.
Following the Codification, the Board will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue
Accounting Standards Updates (ASU) which will serve to update the Codification, provide
background information about the guidance and provide the basis for conclusions on the
changes to the Codification.
The Codification is not intended to change GAAP, but it will change the way GAAP is organized
and presented. In order to ease the transition to the Codification, we are providing the
Codification cross-reference alongside the references to the standards issued and adopted
prior to the adoption of the Codification.
In 2010, the FASB issued ASU No. 2010-06 which amends Fair Value Measurements and Disclosures
Overall (ASC Topic 820-10). This update requires a gross presentation of activities within
the Level 3 rollforward and adds a new requirement to disclose transfers in and out of Level
1 and 2 measurements. The update further clarifies the existing disclosure requirements in
ASC 820-10 regarding: i) the level of disaggregation of fair value measurements; and ii) the
disclosures regarding inputs and valuation techniques. This update will be effective for our
fiscal year beginning January 1, 2010 except for the gross presentation of the Level 3
transfers in and transfers out information, which is effective for the current fiscal year.
The principal impact from this update will be expanded disclosures regarding our fair value
measurements.
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133 (ASC Topic 815), which expands the
disclosure requirements in FASB Statement No. 133 about an entitys derivative instruments
and hedging activities. ASC Topic 815 was effective for fiscal years and interim periods
beginning after November 15, 2008. The adoption of this guidance did not have a material
effect on the Plans financial statements.
In April 2009, the FASB issued FASB Staff Position (FSP) No. 157-4, Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly (ASC 82010-65). ASC 82010-65
relates to
7
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
determining fair values when there is no active market or where the price inputs
being used represent distressed sales. It reaffirms the FAS 157 (ASC 820) objective of
fair value measurement to reflect how much an asset would be sold for in an orderly
transaction (as opposed to a distressed or forced transaction) at the date of the financial
statements under current market conditions. Specifically, it reaffirms the need to use
judgment to ascertain if a formerly active market has become inactive and in determining fair
values when markets have become inactive. ASC 82010-65 is effective for fiscal years
ending after June 15, 2009. The adoption of this guidance did not have a material effect on
the Plans financial statements.
In May 2009, the FASB issued FAS 165 (ASC 855-10) a new accounting standard that
requires disclosure in the financial statements to reflect the effects of subsequent events
that provide additional information on conditions about the financial statements as of the
Statements of Assets Available for Benefits date (recognized subsequent events) and
disclosure of subsequent events that provide additional information about conditions after
the Statements of Assets Available for Benefits date, if the financial statements would
otherwise be misleading (unrecognized subsequent events). The Plan adopted the accounting
standard as of December 31, 2009. Events or transactions occurring after period end through
the date that the financial statements were issued, have been evaluated in the preparation of
the financial statements.
In 2009, the FASB issued ASU No. 2009-12 which provides amendments to Fair Value Measurements
and Disclosures Overall (ASC Topic 820-10), for the fair value measurement of investments
in certain entities that calculate net asset value per share. The update permits as a
practical expedient, a reporting entity to measure the fair value of an investment on the
basis of the NAV per share of the investment if the NAV is calculated in a manner consistent
with the measurement principles of Topic 946 Financial Services Investment Companies.
The update requires disclosure by major category of investment about the attributes of
investments, such as the nature of the restrictions on the investors ability to redeem its investments at the
measurement date, any unfunded commitments, and the investment strategies of the investees.
The adoption of this update did not have material effect on the Plans financial statements.
The Internal Revenue Service has determined and informed the Company by a letter dated
November 12, 2009, covering Plan amendments through March 26, 2009, that the Plan and related
Master Trust are designed in accordance with applicable sections of the Internal Revenue Code
(IRC). The Plan has been amended since receiving the determination letter. However, the
Plan administrator believes that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the IRC. Therefore, no provision for income
taxes has been included in the Plans financial statements.
As discussed in Note 2, the Plan participates in the Master Trust. The Trustee holds the
Master Trusts investment assets, provides administrative functions for each of the Plans
participating in the Master Trust, and executes investment transactions as directed by
participants.
8
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
The following Xerox employee benefit plans represent the following percentages in the net assets of
the Master Trust as of December 31:
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2009 |
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2008 |
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Xerox Corporation Savings Plan |
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54.3 |
% |
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50.7 |
% |
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Savings Plan of Xerox Corporation and the
Xerographic Division, Rochester Regional Joint Board on Behalf of
Itself and Other Regional Joint Boards (formerly The Savings Plan
of Xerox Corporation and The Xerographic Division, UNITE HERE) |
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3.3 |
% |
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3.3 |
% |
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Xerox Corporation Retirement Income Guarantee Plan |
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39.5 |
% |
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42.4 |
% |
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Retirement Income Guarantee Plan of Xerox Corporation and
the Xerographic Division, Rochester Regional Joint Board
on Behalf of Itself and Other Regional Joint Boards (formerly
Retirement Income Guarantee Plan of Xerox Corporation and The
Xerographic Division, UNITE HERE) |
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2.9 |
% |
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3.6 |
% |
9
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
The following financial information is presented for the Master Trust.
Statements of Net Assets of the Master Trust are as follows:
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(in thousands) |
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2009 |
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2008 |
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Assets |
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Investments at fair value (including securities on loan of $0 and
$111,663, respectively) |
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Short term investments |
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$ |
167,762 |
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$ |
12,724 |
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Fixed income investments |
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1,264,052 |
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529,824 |
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Xerox common stock |
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125,094 |
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111,355 |
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Registered investment companies |
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113,958 |
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7,659 |
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Common and preferred stock |
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1,348,167 |
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413,277 |
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Common collective trusts |
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3,815,384 |
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5,495,580 |
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Interest in real estate trusts |
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57,476 |
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94,741 |
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Investment in securities lending collateral collective trust fund |
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111,294 |
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Interest in partnerships/joint ventures |
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|
453,274 |
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263,461 |
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Unrealized gain on foreign exchange payable |
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|
8,004 |
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6,186 |
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Purchased options |
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48,790 |
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Unrealized gain on open swap contracts |
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1,526 |
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7,403,487 |
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|
|
7,046,101 |
|
|
|
|
|
|
|
|
Cash |
|
|
1,094 |
|
|
|
|
|
Cash, segregated |
|
|
56,235 |
|
|
|
28,510 |
|
Receivables |
|
|
|
|
|
|
|
|
Accrued dividends and interest |
|
|
22,852 |
|
|
|
5,935 |
|
Receivable for securities sold |
|
|
6,192 |
|
|
|
1,443 |
|
|
|
|
|
|
|
|
Total assets |
|
|
7,489,860 |
|
|
|
7,081,989 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Payable for securities purchased |
|
|
5,350 |
|
|
|
30,733 |
|
Accrued expenses |
|
|
9,813 |
|
|
|
12,816 |
|
Payable for collateral on securities loaned |
|
|
|
|
|
|
111,294 |
|
Due to custodian |
|
|
460 |
|
|
|
36 |
|
Options written at value (premium received $40,484) |
|
|
67,158 |
|
|
|
|
|
Variation margin on futures |
|
|
5,750 |
|
|
|
19,744 |
|
Unrealized loss on foreign exchange receivable |
|
|
893 |
|
|
|
2,714 |
|
Other |
|
|
924 |
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
90,348 |
|
|
|
177,337 |
|
|
|
|
|
|
|
|
Net assets of the Master Trust * |
|
$ |
7,399,512 |
|
|
$ |
6,904,652 |
|
|
|
|
|
|
|
|
|
|
|
* |
|
Represents net assets at contract value |
10
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Statement of changes in net assets of the Master Trust is as follows for the year ended December
31, 2009:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
Additions to net assets attributable to |
|
|
|
|
Investments |
|
|
|
|
Interest and dividends |
|
$ |
74,711 |
|
Net appreciation of investments |
|
|
833,458 |
|
Other |
|
|
3,493 |
|
|
|
|
|
Total additions from investments |
|
|
911,662 |
|
|
|
|
|
|
|
|
|
|
Deductions from net assets attibutable to |
|
|
|
|
Net transfers out of Master Trust * |
|
|
385,902 |
|
Administrative expenses |
|
|
30,900 |
|
|
|
|
|
Total deductions |
|
|
416,802 |
|
|
|
|
|
Net increase in net assets available for benefits |
|
|
494,860 |
|
|
|
|
|
|
Net assets available for benefits |
|
|
|
|
Beginning of year |
|
|
6,904,652 |
|
|
|
|
|
End of year |
|
$ |
7,399,512 |
|
|
|
|
|
|
|
|
* |
|
Net transfers include employer contributions, employee contributions, rollovers, settlement
allocations, benefit payments and other transfers. |
Reclassifications
Certain reclassifications were made to the prior year financial statements to conform to
current year presentation.
As of October 31, 2008, the named fiduciary with respect to the overall investment strategy
for the Master Trust investments, along with all other day to day fiduciary investment
responsibilities, is the Xerox Retirement Investment Committee (XRIC). XRIC is successor
to the Fiduciary Investment Review Committee which, prior to October 31, 2008, had been
delegated investment fiduciary authority by the Finance Committee of the Board. The Xerox
Corporate Treasurer chairs the XRIC, which is composed of corporate members who oversee the
management of the funds on a regular basis.
11
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
During 2009, the Master Trusts investments (including investments bought, sold, as well as held
during the year) appreciated (depreciated) in value as follows for the year ended December 31,
2009:
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
Short term investments |
|
$ |
(3 |
) |
Fixed income investments |
|
|
4,514 |
|
Registered investment companies |
|
|
21,826 |
|
Common and preferred stock |
|
|
301,077 |
|
Common collective trusts |
|
|
611,296 |
|
Xerox common stock |
|
|
12,233 |
|
Futures contracts |
|
|
(96,705 |
) |
Foreign currency |
|
|
(8,249 |
) |
Options contracts |
|
|
(18,368 |
) |
Swap contracts |
|
|
1,526 |
|
Interest in real estate trusts |
|
|
(42,371 |
) |
Interest in partnerships/joint ventures |
|
|
46,682 |
|
|
|
|
|
Net appreciation |
|
$ |
833,458 |
|
|
|
|
|
5. |
|
Fair Value Measurement |
|
|
|
ASC 820 defines fair value, establishes a market-based framework hierarchy for measuring fair
value, and expands disclosures about fair value measurements in the footnotes to the
financial statements. ASC 820 is applicable whenever another accounting pronouncement
requires or permits assets and liabilities to be measured at fair value. |
|
|
|
In accordance with ASC 820, fair value is defined as the price that would be received to sell
an asset in an orderly transaction between market participants at the measurement date in the
principal or most advantageous market of the asset. |
|
|
|
ASC 820 established a three-tier hierarchy based on transparency of inputs to the valuation
of an asset or liability: |
|
|
|
Level 1: |
|
Highly liquid assets listed on active public markets, |
|
|
|
Level 2: |
|
Semi-liquid assets which are primarily non public investments priced with
comparable market values. Inputs are observable. |
|
|
|
Level 3: |
|
Highly illiquid assets valued using such methods as internal discounted cash
flow estimates utilizing appropriate risk adjusted discount rates. Inputs are
unobservable. |
|
|
A financial instruments categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. The adoption of ASC
820 did not have material impact on the financial statements of the Plan. |
12
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
According to the hierarchy each fund was assigned level 1, 2 or 3 based on where each funds
assets were invested in. The Plan has no assets classified within level 3 of the valuation
hierarchy aside from participant loans.
Table 1. Master Trust (Defined Contribution and Defined Benefit Plans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Assets at Fair Value as of December 31, 2009 |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short term investments |
|
$ |
|
|
|
$ |
167,762 |
|
|
$ |
|
|
|
$ |
167,762 |
|
Xerox common stock |
|
|
125,094 |
|
|
|
|
|
|
|
|
|
|
|
125,094 |
|
Common and preferred stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. large cap |
|
|
623,414 |
|
|
|
|
|
|
|
|
|
|
|
623,414 |
|
U.S. mid cap |
|
|
129,225 |
|
|
|
|
|
|
|
|
|
|
|
129,225 |
|
U.S. small cap |
|
|
249,788 |
|
|
|
|
|
|
|
|
|
|
|
249,788 |
|
Internationally developed |
|
|
175,113 |
|
|
|
105,851 |
|
|
|
|
|
|
|
280,964 |
|
Emerging markets |
|
|
57,916 |
|
|
|
|
|
|
|
|
|
|
|
57,916 |
|
Real estate equity |
|
|
6,860 |
|
|
|
|
|
|
|
|
|
|
|
6,860 |
|
Common collective trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity |
|
|
|
|
|
|
328,937 |
|
|
|
|
|
|
|
328,937 |
|
International equity |
|
|
|
|
|
|
493,793 |
|
|
|
|
|
|
|
493,793 |
|
Domestic/International equity |
|
|
|
|
|
|
1,292,580 |
|
|
|
|
|
|
|
1,292,580 |
|
Fixed income |
|
|
|
|
|
|
292,670 |
|
|
|
|
|
|
|
292,670 |
|
Stable value fund |
|
|
|
|
|
|
1,407,404 |
|
|
|
|
|
|
|
1,407,404 |
|
Registered investment companies |
|
|
113,958 |
|
|
|
|
|
|
|
|
|
|
|
113,958 |
|
Fixed income investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury securities |
|
|
|
|
|
|
180,432 |
|
|
|
|
|
|
|
180,432 |
|
Debt securities issued by government |
|
|
|
|
|
|
149,454 |
|
|
|
|
|
|
|
149,454 |
|
Corporate bonds |
|
|
|
|
|
|
929,039 |
|
|
|
|
|
|
|
929,039 |
|
Asset backed securities |
|
|
|
|
|
|
5,127 |
|
|
|
|
|
|
|
5,127 |
|
Interest in partnerships / joint ventures |
|
|
|
|
|
|
154,647 |
|
|
|
298,627 |
|
|
|
453,274 |
|
Interest in real estate trusts |
|
|
|
|
|
|
1,047 |
|
|
|
56,429 |
|
|
|
57,476 |
|
Purchased options |
|
|
|
|
|
|
48,790 |
|
|
|
|
|
|
|
48,790 |
|
Unrealized gain on foreign exchange
payable |
|
|
|
|
|
|
8,004 |
|
|
|
|
|
|
|
8,004 |
|
Unrealized gain on futures contracts * |
|
|
|
|
|
|
1,683 |
|
|
|
|
|
|
|
1,683 |
|
Unrealized gain on open swap contracts |
|
|
|
|
|
|
1,526 |
|
|
|
|
|
|
|
1,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment assets at fair value |
|
$ |
1,481,368 |
|
|
$ |
5,568,746 |
|
|
$ |
355,056 |
|
|
$ |
7,405,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Options written at value |
|
$ |
|
|
|
$ |
67,158 |
|
|
$ |
|
|
|
$ |
67,158 |
|
Unrealized loss on futures contracts * |
|
|
|
|
|
|
43,165 |
|
|
|
|
|
|
|
43,165 |
|
Unrealized loss on foreign exchange
receivable |
|
|
|
|
|
|
893 |
|
|
|
|
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment liabilities at fair value |
|
$ |
|
|
|
$ |
111,216 |
|
|
$ |
|
|
|
$ |
111,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes cumulative appreciation (depreciation) of futures contracts. Only current days
variation margin is reported within the Statements of Net Assets of the Master Trust. |
13
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Table 2. Defined Contribution Plans only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Assets at Fair Value as of December 31, 2009 |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Short term investments |
|
$ |
|
|
|
$ |
11,387 |
|
|
$ |
|
|
|
$ |
11,387 |
|
Xerox common stock |
|
|
125,094 |
|
|
|
|
|
|
|
|
|
|
|
125,094 |
|
Common and preferred stocks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. large cap |
|
|
244,709 |
|
|
|
|
|
|
|
|
|
|
|
244,709 |
|
U.S. mid cap |
|
|
127,655 |
|
|
|
|
|
|
|
|
|
|
|
127,655 |
|
U.S. small cap |
|
|
181,565 |
|
|
|
|
|
|
|
|
|
|
|
181,565 |
|
Common collective trusts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic equity |
|
|
|
|
|
|
259,069 |
|
|
|
|
|
|
|
259,069 |
|
International equity |
|
|
|
|
|
|
346,405 |
|
|
|
|
|
|
|
346,405 |
|
Domestic/International equity |
|
|
|
|
|
|
1,292,580 |
|
|
|
|
|
|
|
1,292,580 |
|
Fixed income |
|
|
|
|
|
|
252,632 |
|
|
|
|
|
|
|
252,632 |
|
Stable value fund |
|
|
|
|
|
|
1,407,404 |
|
|
|
|
|
|
|
1,407,404 |
|
Registered investment companies |
|
|
13,938 |
|
|
|
|
|
|
|
|
|
|
|
13,938 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment assets at fair value |
|
$ |
692,961 |
|
|
$ |
3,569,477 |
|
|
$ |
|
|
|
$ |
4,262,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to participants* |
|
|
|
|
|
|
|
|
|
$ |
72,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below are the Master Trust and Defined Contributions Plans tables for 2008. Since the
ASC 820-10-65 was issued and adopted in 2009, the presentations of investments in the tables
for 2008 and 2009 are different.
Table 1. Master Trust (Defined Contribution and Defined Benefit Plans)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Assets at Fair Value as of December 31, 2008 |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Short term investments |
|
$ |
|
|
|
$ |
12,724 |
|
|
$ |
|
|
|
$ |
12,724 |
|
Xerox common stock |
|
|
111,355 |
|
|
|
|
|
|
|
|
|
|
|
111,355 |
|
Common and preferred stocks |
|
|
413,277 |
|
|
|
|
|
|
|
|
|
|
|
413,277 |
|
Common collective trusts |
|
|
|
|
|
|
5,495,580 |
|
|
|
|
|
|
|
5,495,580 |
|
Fixed income investments |
|
|
|
|
|
|
529,824 |
|
|
|
|
|
|
|
529,824 |
|
Partnerships / joint ventures |
|
|
|
|
|
|
|
|
|
|
263,461 |
|
|
|
263,461 |
|
Registered investment companies |
|
|
7,659 |
|
|
|
|
|
|
|
|
|
|
|
7,659 |
|
Real estate trusts |
|
|
|
|
|
|
|
|
|
|
94,741 |
|
|
|
94,741 |
|
Securities lending collateral
collective trust fund |
|
|
|
|
|
|
111,294 |
|
|
|
|
|
|
|
111,294 |
|
Futures |
|
|
|
|
|
|
(19,744 |
) |
|
|
|
|
|
|
(19,744 |
) |
Foreign currency contracts |
|
|
|
|
|
|
3,472 |
|
|
|
|
|
|
|
3,472 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment assets at fair value |
|
$ |
532,291 |
|
|
$ |
6,133,150 |
|
|
$ |
358,202 |
|
|
$ |
7,023,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Table 2. Defined Contribution Plans only
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Assets at Fair Value as of December 31, 2008 |
|
(in thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
Short term investment |
|
$ |
|
|
|
$ |
7,455 |
|
|
$ |
|
|
|
$ |
7,455 |
|
Xerox common stock |
|
|
111,355 |
|
|
|
|
|
|
|
|
|
|
|
111,355 |
|
Common and preferred stocks |
|
|
413,228 |
|
|
|
|
|
|
|
|
|
|
|
413,228 |
|
Common collective trusts |
|
|
|
|
|
|
3,187,574 |
|
|
|
|
|
|
|
3,187,574 |
|
Registered investment companies |
|
|
7,659 |
|
|
|
|
|
|
|
|
|
|
|
7,659 |
|
Securities lending collateral
collective trust fund |
|
|
|
|
|
|
111,294 |
|
|
|
|
|
|
|
111,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment assets at
fair value |
|
$ |
532,242 |
|
|
$ |
3,306,323 |
|
|
$ |
|
|
|
$ |
3,838,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to participants* |
|
|
|
|
|
|
|
|
|
$ |
70,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 Investment Assets
The Level 3 investment assets represent approximately five percent of the total Master Trust
investments and are comprised of the private equity placement and real estate funds. Loans
to participants which are not included in the Master Trust, are also classified within level
3. The table below sets forth a summary of changes in the fair value of the Master Trusts
level 3 investment assets as well as participant loans for the year ended December 31, 2009.
The classification of an investment within level 3 is based upon the significance of the
unobservable inputs to the overall fair value measurement.
Table 3. Level 3 Investment Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Assets at Fair Value as of December 31, 2009 |
|
(in thousands) |
|
Partnerships |
|
|
Real estate |
|
|
Total |
|
|
Participant loans * |
|
Balance, beginning of year |
|
$ |
263,461 |
|
|
$ |
94,741 |
|
|
$ |
358,202 |
|
|
$ |
70,416 |
|
Realized gains / (losses) |
|
|
(11,199 |
) |
|
|
3,085 |
|
|
|
(8,114 |
) |
|
|
|
|
Unrealized gains / (losses) |
|
|
30,193 |
|
|
|
(43,907 |
) |
|
|
(13,714 |
) |
|
|
|
|
Purchases, sales, issuances,
and settlements (net) |
|
|
16,172 |
|
|
|
2,510 |
|
|
|
18,682 |
|
|
|
2,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
298,627 |
|
|
$ |
56,429 |
|
|
$ |
355,056 |
|
|
$ |
72,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Not included in the Master Trust. The Participant loans balance represents the total of
participant loans for only the Xerox Corporation Savings Plan. |
15
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Fair Value Measurements of the Investments in Certain Entities that Calculate Net Asset Value
per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded |
|
|
|
|
|
|
Frequency |
|
|
Trade to |
|
|
Redemption |
|
|
|
Fair Value |
|
|
Commitments(in |
|
|
Remaining |
|
|
(if currently |
|
|
Settlement |
|
|
Notice |
|
|
|
(in millions) |
|
|
millions) |
|
|
Life |
|
|
eligible) |
|
|
Terms |
|
|
Period |
|
Commingled fund investing |
|
|
|
|
|
|
|
|
|
|
|
|
|
daily, pending market |
|
|
|
|
|
|
|
|
in Domestic Equity 1 |
|
$ |
328.9 |
|
|
|
|
|
|
|
N/A |
|
|
conditions |
|
|
1 to 3 days |
|
|
|
N/A |
|
Commingled fund investing |
|
|
|
|
|
|
|
|
|
|
|
|
|
daily, pending market |
|
|
|
|
|
|
|
|
in International Equity 1 |
|
$ |
493.8 |
|
|
|
|
|
|
|
N/A |
|
|
conditions |
|
|
1 to 3 days |
|
|
|
N/A |
|
Commingled funds investing |
|
|
|
|
|
|
|
|
|
|
|
|
|
daily, pending market |
|
|
|
|
|
|
|
|
in Fixed Income Funds 1 |
|
$ |
1,700.1 |
|
|
|
|
|
|
|
N/A |
|
|
conditions |
|
|
1 to 3 days |
|
|
|
N/A |
|
Commingled fund investing in mutual funds investing in |
|
|
|
|
|
|
|
|
|
|
|
|
|
daily, pending |
|
|
|
|
|
|
|
|
fixed income and equity securites 1 |
|
$ |
1,292.6 |
|
|
|
|
|
|
|
N/A |
|
|
market conditions |
|
|
1 to 3 days |
|
|
|
N/A |
|
Partnership Fund investing in
International Equity 2 |
|
$ |
154.6 |
|
|
|
|
|
|
|
N/A |
|
|
monthly |
|
|
1 to 3 days |
|
|
15 days |
Private Equity Funds 3 |
|
$ |
298.6 |
|
|
$ |
122.2 |
|
|
|
1 to 9 years |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Private Real Estate Funds 4 |
|
$ |
57.5 |
|
|
$ |
8.4 |
|
|
|
4 to 10 years |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,326.1 |
* |
|
$ |
130.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The amount represents certain investments of the Master Trust that calculate net asset value
per share. |
|
1 |
|
These categories represent investments in Common Collective Trusts investing in
domestic equity, international equity, fixed income and equity securities and the Stable Value fund
as noted. Its investments are valued at Net Asset Value (NAV). All the Common Collective Trust
funds have daily liquidity and are not subject to any redemption restrictions at the measurement
date. The funds have different trading terms varying from one to three days. |
|
2 |
|
This category includes one partnership fund that invests in international equity. The
holdings in the fund are valued at Net Asset Value (NAV), and the fund allows for monthly
redemptions and contributions on the first of each month. The fund manager must be notified by the 15th of the proceeding
month for redemptions and contributions. |
|
3 |
|
This category includes 15 partnership funds that invest in private equity both
domestically and internationally. These investments can never be redeemed during the life of the
funds. Instead, distributions are received through the liquidation of the underlying assets of the
funds. It is estimated that the underlying assets will be liquidated over the next 1 to 9 years.
Unfunded commitments of $122.2M remain on eight of the funds. |
|
4 |
|
This category includes 15 investments in domestic and international real estate funds.
The fair value of these investments is estimated using the Net Assets Value (NAV) of the Trusts
ownership interest in partners capital. The valuation inputs of these investments are derived from
third party appraisals. These |
16
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
|
|
|
|
|
investments can never be redeemed during the life of the funds. Distributions from each fund
will be received as the underlying investments if the funds are liquidated over the next 4 to 10
years. Unfunded commitments of $8.4M remain in 12 of the funds. |
6. Stable Value Fund (Income Fund) Option
One of the participant directed investment options within the Master Trust is a stable value
investment option (Income Fund) in which the Master Trust has an undivided interest that invests
along with other unrelated employee benefit plans in a group trust that owns certain investments
and three benefit responsive synthetic investment contracts (the Wrap Contracts) issued by
insurance companies ING Life Insurance and Annuity Company, Pacific Life Insurance Company and
Monumental Life Insurance Company (Wrap Issuers) (Group Trust). The underlying investments
wrapped by the Wrap Contracts are held in a collective investment trust (the Fund Trust) within
the Group Trust and are primarily U.S. investment grade corporate bonds, U.S. government/agency
bonds, mortgage and other asset-backed securities, U.S. below-investment grade corporate bonds, and
other fixed income securities. Under the Wrap Contracts, the Wrap Issuers guarantee that certain
assets of the Fund Trust (the Wrapped Assets) will be sufficient to make benefit payments on a
contract (also known as book) value basis, with the contract value including interest credited
daily at a net crediting rate. The net crediting rate cannot be set below zero, so the contract
value at least equals the initial investment value of the investments constituting Wrapped Assets
minus any redemptions from the Wrap Contracts. The net crediting rate generally is reset quarterly.
Assets not covered by the Wrap Contracts are generally invested in money market accounts and cash
equivalents to provide necessary liquidity for participant withdrawals and exchanges. The
periodical reset of the net crediting rate is affected by many factors, including but not limited
to the investment performance of the Wrapped Assets, purchases and redemptions by participants, and
changes in Income Fund investment strategies or procedures. The net crediting rate is influenced by
the relationship of the fair value of the Wrapped Assets to the contract value of those Wrapped
Assets. In calculating the net crediting rate, the ratio between the fair value and the contract
value is generally amortized over the effective duration of the underlying investment. If the fair
value of the Wrapped Assets is higher than their contract value, the net crediting rate will
ordinarily be higher than the yield of the Wrapped Assets. Conversely, if the fair value of the
Wrapped Assets is lower than their contract value, the net crediting rate will ordinarily be lower
than the yield of the Wrapped Assets. Generally, the fair values of the Wrapped Assets move in the
opposite direction of interest rates.
Information regarding the Plans interest in the Income Fund is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
December 31, |
|
|
(in thousands) |
|
2009 |
|
2008 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets at fair value |
|
$ |
1,268,958 |
|
|
$ |
1,220,485 |
|
|
$ |
48,473 |
|
Net assets (at contract value) |
|
|
1,285,881 |
|
|
|
1,378,721 |
|
|
|
(92,840 |
) |
Adjustment to contract value |
|
|
16,923 |
|
|
|
158,236 |
|
|
|
(141,313 |
) |
The average yields are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
|
|
|
Based on bond equivalent yield |
|
|
5.35 |
% |
|
|
6.25 |
% |
Based on interest rate credited to participants |
|
|
3.10 |
% |
|
|
3.90 |
% |
The Income Fund and the Wrap Contracts are designed to pay participant-initiated transactions
allowed by the Plan (typically this would include withdrawals for benefits, loans, or transfers to
non-competing
17
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
investment options within the Plan) at contract value, which is the participants original
investment minus redemptions plus accumulated interest based on the above mentioned crediting
rates. However, the Wrap Issuers may limit the ability to transact at contract value upon the
occurrence of certain events. These events include:
|
|
|
Merger, consolidation, sale of assets or other events (e.g., spin-offs or
restructurings) within the control of a plan or a plan sponsor which results in
redemptions in excess of the threshold established by the Wrap Contracts. |
|
|
|
|
A mass layoff or early retirement incentive program or the filing of a petition in
bankruptcy, which results in redemptions in excess of the threshold established by the
Wrap Contracts. |
If the book value of the Wrap Contract is less than $100,000,000 and if the fair value of the
securities is greater than contract value (with certain exclusions), the Wrap Issuer may terminate
the contract at fair value. The Wrap Issuer may also terminate the Wrap Contract at fair value
immediately for the following reasons:
|
|
|
The Plan is disqualified by the Internal Revenue Service. |
|
|
|
|
The Plan is terminated and its assets distributed to the participants. |
|
|
|
|
The Group Trust ceases to meet its material obligations under the contact (such as a
failure to comply with the investment guidelines or the addition of a competing
investment option by a plan, etc.) and such breach is not cured within 30 days after
notice. |
|
|
|
|
The Group Trust assigns its interest in the contract without permission. |
|
|
|
|
Upon investment manager termination, a new manager acceptable to the Wrap Issuers is
not appointed within 30 days. |
|
|
|
|
The Group Trust changes the underlying investment guidelines without the Wrap
Issuers consent. |
|
|
|
|
Investment discretion is granted to anyone except the manager or a subadvisor
appointed by the manager and this continues for 30 days after notice. |
|
|
|
|
The Group Trust engages in fraud or deceit relating to the Wrap Contract. |
|
|
|
|
The Group Trust makes any misrepresentation of material facts relating to the Wrap
Contract. |
|
|
|
|
A plan makes a participant communication designed to induce participants to make
transfers into or out of the Wrap Contract that the Wrap Issuers determine will
materially and adversely impact their obligations under the Wrap Contract. |
|
|
|
|
A plan makes certain Plan amendments or alterations in Plan administration that the
Wrap Issuers reasonably determine will materially and adversely impact their obligations
under the Wrap Contract. |
The Plan administrator does not believe that the occurrence of any such event which would limit the
Plans ability to transact at contract value with participants is probable.
18
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
The Wrap Contracts contain net withdrawal limits applicable solely to the Plan, whereby once
net withdrawals exceed a certain threshold, the Wrap Contracts reserve the right to make benefit
payments at fair or market value instead of contract value.
The Wrap Issuers also have a right to terminate the Wrap Contracts at any time without cause, after
which the availability of payment of benefits on a contract value basis, subject to the terms of
the Wrap Contracts, would continue for a period of time. Deterioration in the
fair-to-book-value-ratio could lead one or more Wrap Issuers to exercise this right. Factors that
could lead to further deterioration in the fair-to-book-value ratio or the crediting rate earned by
the participants include further decline in the fair value of the securities held due to
illiquidity, interest rate or credit risk or net cash outflows due to redemptions by participants
in the plans. Participants have continued to transact at contract value through the date of this
report.
There is no guarantee as to the future financial condition of a Wrap Issuer. The Wrap Issuers
ability to meet its contractual obligations under the respective Wrap Contracts may be affected by
future economic and regulatory developments in the insurance industries.
Effective March 1, 2010, the Income Fund is managed by Invesco Advisors, Inc. The prior manager
was Promark Investment Advisors. New contracts were entered into by the Xerox Corporation Savings
Plan and the Savings Plan of Xerox Corporation and the Xerographic Division, Rochester Regional
Joint Board on Behalf of Itself and Other Regional Joint Boards (the Plans) at the time of this
transition whereby the Plans became the sole investors in the new contracts.
7. Derivative Policy
The Master Trust may enter into contractual arrangements (derivatives) in carrying out its
investment strategy, and is limited to the use of derivatives allowed by the Investment Policy
Statement, principally to: (1) hedge a portion of the Master Trusts portfolio to limit or minimize
exposure to certain risks, (2) gain an exposure to a market more rapidly or less expensively than
could be accomplished through the use of the cash markets, and (3) reduce the cost of structuring
the portfolio or capture value disparities between financial instruments. The Master Trust may
utilize both exchange traded investment instruments such as equity and fixed income futures and
options on fixed income futures, forward currency contracts and interest rate swaps. When engaging
in forward currency contracts, there is exposure to credit loss in the event of non-performance by
the counterparties to these transactions. The Master Trust manages this exposure through credit
approvals and limited monitoring procedures. Procedures are in place to regularly monitor and
report market and counterparty credit risks associated with these instruments. During the year
ended December 31, 2009, all the derivatives were used in the defined benefit plans of the Master
Trust.
The following is a summary of the significant accounting policies associated with the Master
Trusts use of derivatives.
Forward Foreign Currency Exchange Contracts
Forward currency contracts are generally utilized to hedge a portion of the currency exposure that
results from the Master Trusts holdings of equity and fixed income securities denominated in
foreign currencies.
Forward currency contracts are generally marked-to-market at the prevailing forward exchange rate
of the underlying currencies and the difference between contract value and market value is recorded
as unrealized appreciation (depreciation) in Master Trust net assets. When the forward currency
contract is closed, the Master Trust transfers the unrealized appreciation (depreciation) to a
realized gain (loss) equal to the change in the value of the forward exchange contract when it was
opened and the value at the time it was closed or offset. Sales and purchases of forward currency
contracts having the same settlement date and broker are offset and any gain (loss) is realized on
the date of offset.
19
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Certain risks may arise upon entering into a forward currency contract from the potential
inability of counterparties to meet the terms of their contracts. Additionally, when utilizing
forward currency contracts to hedge, the Master Trust gives up the opportunity to profit from
favorable exchange rate movements during the term of the contract. As of December 31, 2009 and
2008, the value of currencies under forward currency contracts represents less than 1% of total
investments.
A summary of open forward currency contracts of the Master Trust at December 31, 2009 and 2008 is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 (in thousands) |
|
|
2008 (in thousands) |
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
Notional |
|
|
Appreciation/ |
|
|
|
|
Notional |
|
|
Appreciation/ |
|
|
|
Value Date |
|
Value |
|
|
(Depreciation) |
|
|
Value Date |
|
Value |
|
|
(Depreciation) |
|
Purchased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australian Dollar |
|
11/17/09-12/16/09 |
|
$ |
2,001 |
|
|
$ |
(30 |
) |
|
7/22/08-12/23/08 |
|
$ |
40,373 |
|
|
$ |
(3,114 |
) |
Canadian Dollar |
|
|
|
|
|
|
|
|
|
|
|
10/31/08-12/23/08 |
|
|
34,873 |
|
|
|
(865 |
) |
Euro |
|
11/17/09 |
|
|
13,908 |
|
|
|
(473 |
) |
|
9/17/08-12/23/08 |
|
|
243,767 |
|
|
|
4,885 |
|
Japanese Yen |
|
12/08/09-12/16/09 |
|
|
3,406 |
|
|
|
(149 |
) |
|
9/15/08-12/19/08 |
|
|
106,477 |
|
|
|
8,205 |
|
Pound Sterling |
|
11/17/09-12/16/09 |
|
|
5,802 |
|
|
|
(179 |
) |
|
9/08/08-12/30/08 |
|
|
100,068 |
|
|
|
(15,625 |
) |
Swiss Franc |
|
11/17/09-12/16/09 |
|
|
3,541 |
|
|
|
(31 |
) |
|
9/18/08-12/23/08 |
|
|
106,044 |
|
|
|
4,541 |
|
Norwegian Kroner |
|
11/06/09 |
|
|
631 |
|
|
|
(13 |
) |
|
11/04/08-12/04/08 |
|
|
23,226 |
|
|
|
(340 |
) |
Swedish Kroner |
|
|
|
|
|
|
|
|
|
|
|
11/04/08-11/28/08 |
|
|
25,708 |
|
|
|
(353 |
) |
N. Zealand Dollar |
|
|
|
|
|
|
|
|
|
|
|
10/29/08-12/18/08 |
|
|
22,393 |
|
|
|
(49 |
) |
Singapore Dollar |
|
11/17/09 |
|
|
1,614 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
Hong Kong Dollar |
|
12/16/09 |
|
|
592 |
|
|
|
|
|
|
9/17/08-12/23/08 |
|
|
2,117 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
31,495 |
|
|
$ |
(893 |
) |
|
|
|
$ |
705,046 |
|
|
$ |
(2,714 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australian Dollar |
|
11/06/09 |
|
$ |
19,561 |
|
|
$ |
266 |
|
|
8/01/08-12/23/08 |
|
$ |
41,011 |
|
|
$ |
4,908 |
|
Canadian Dollar |
|
|
|
|
|
|
|
|
|
|
|
11/04/08-12/08/08 |
|
|
39,132 |
|
|
|
1,827 |
|
Euro |
|
11/06/09-12/16/09 |
|
|
100,334 |
|
|
|
3,754 |
|
|
7/22/08-12/30/08 |
|
|
289,722 |
|
|
|
887 |
|
Japanese Yen |
|
11/06/09-12/10/09 |
|
|
53,514 |
|
|
|
1,617 |
|
|
7/22/08-12/23/08 |
|
|
142,210 |
|
|
|
(11,394 |
) |
New Zealand Dollar |
|
11/06/09 |
|
|
914 |
|
|
|
(6 |
) |
|
11/03/08-12/23/08 |
|
|
23,125 |
|
|
|
(866 |
) |
Pound Sterling |
|
11/06/09 |
|
|
60,630 |
|
|
|
1,725 |
|
|
7/22/08-12/23/08 |
|
|
110,299 |
|
|
|
21,903 |
|
Swiss Franc |
|
11/06/09 |
|
|
25,067 |
|
|
|
459 |
|
|
7/22/08-12/16/08 |
|
|
117,215 |
|
|
|
(10,849 |
) |
Norwegian Kroner |
|
|
|
|
|
|
|
|
|
|
|
10/30/08-12/23/08 |
|
|
23,572 |
|
|
|
(37 |
) |
Swedish Kroner |
|
11/06/09-12/16/09 |
|
|
5,973 |
|
|
|
117 |
|
|
10/29/08-12/17/08 |
|
|
23,559 |
|
|
|
(186 |
) |
Singapore Dollar |
|
11/06/09 |
|
|
8,368 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
Hong Kong Dollar |
|
11/06/09 |
|
|
7,396 |
|
|
|
6 |
|
|
7/22/08-12/23/08 |
|
|
6,482 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
281,757 |
|
|
$ |
8,004 |
|
|
|
|
$ |
816,327 |
|
|
$ |
6,186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future Contracts
The Master Trust may use equity index and fixed income futures contracts to manage exposure to the
market. Buying futures tends to increase the Master Trusts exposure to the underlying instrument.
Selling futures tends to decrease the Master Trusts exposure to the underlying instrument held or
hedge the fair value of other fund investments. The Master Trust does not employ leverage in its
use of derivatives. Futures contracts are valued at the last settlement price at the end of each
day on the exchange upon which they are traded. Upon entering into a futures contract, the Master
Trust is required to deposit either in cash or securities an amount (initial margin) equal to a
certain percentage of the nominal value of the contract. Pursuant to the futures contract, the
Master Trust agrees to receive from, or pay to, the broker an amount of cash equal to the daily
fluctuation in the value of the futures contract. Such receipts or payments are known as
variation margin which are generally settled daily and are included in the unrealized gains
(losses) on futures contracts. The Master Fund will record a variation margin receivable or
payable in the Master Trust net assets for variation margins which have not yet been paid at the
end of the year.
20
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Futures contracts involve, to varying degrees, credit and market
risks. The Master Trust enters into futures contracts on exchanges where the exchange acts as the counterparty to the
transaction. Thus, credit risk on such transactions is limited to the failure of the exchange. The daily settlement on the
futures contracts serves to greatly reduce credit risk.
Losses in value may arise from changes in the value of the underlying instruments or if
there is an illiquid secondary market for the contracts. In addition, there is the risk that there may not be an
exact correlation between a futures contract and the underlying index or security. As of December 31, 2009 and 2008,
the unrealized gain/loss of future contracts represents less than 1% of total investments.
As of December 31, 2009 and December 31, 2008, U.S.
Treasury Bills with market value of $22,498,017 and $2,136,827, respectively, as well as cash balances of $32,815,000 and
$28,510,000, respectively were pledged to cover margin requirements for open futures contracts.
A summary of open equity and fixed income futures of the
Master Trust at December 31, 2009 and 2008 is presented below:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
Contracts |
|
|
Notional |
|
|
2008 Long |
|
|
Notional |
|
|
|
Long / (Short) |
|
|
Value |
|
|
Contracts |
|
|
Value |
|
|
|
|
S&P 500 Emini Index Future |
|
|
2,350 |
|
|
$ |
130,507 |
|
|
|
173 |
|
|
$ |
7,785 |
|
US Treasury Notes 10 yr
Future |
|
|
219 |
|
|
|
25,284 |
|
|
|
3,675 |
|
|
|
462,131 |
|
US Treasury Notes 5 yr Future |
|
|
(33 |
) |
|
|
(3,775 |
) |
|
|
5,000 |
|
|
|
595,273 |
|
US Treasury 2 yr Future |
|
|
(13 |
) |
|
|
(2,811 |
) |
|
|
950 |
|
|
|
207,159 |
|
US Treasury Bonds 30 yr
Future |
|
|
8,673 |
|
|
|
1,000,647 |
|
|
|
3,400 |
|
|
|
469,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,196 |
|
|
$ |
1,149,852 |
|
|
|
13,198 |
|
|
$ |
1,741,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swap
The Master Trust entered into interest rate swap agreements to manage interest rate exposure and to
achieve a desired proportion of variable and fixed rate debt.
The following swap contract was open at December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
|
|
|
|
|
Fixed |
|
Floating |
|
Floating |
|
Effective |
|
Maturity |
|
amount |
|
Value |
Counterparty |
|
Fixed payer |
|
rate |
|
payer |
|
rate |
|
date |
|
date |
|
($ thousands) |
|
($ thousands) |
Credit Suisse First
Boston
|
|
Master Trust
|
|
|
4.26 |
% |
|
Credit Suisse
|
|
3-Month USD LIBOR
|
|
12/9/2009
|
|
12/9/2039
|
|
|
43,000 |
|
|
|
1,526 |
|
The Plan is in receipt of cash collateral of $1,840,000 from the broker.
Options Contracts
The Plan may purchase and sell put and call options on securities. The Plan uses options to manage
against changes in the market value of the Plans investments, mitigate exposure to fluctuations in
currency values, or interest rates, or protect the Plans unrealized gains. In addition, the Plan
may use options to facilitate investment transactions by protecting the Plan against a change in
the market price of the investment, enhance potential gains, or as a substitute for the purchase or
sale of securities or currency.
21
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
Exchange-traded options are valued using the National Best Bid and Offer (NBBO) close price. If
the NBBO close price is not available, the NBBO bid (for long positions) or NBBO Ask (for short
positions) will be used to value the option contract. Options traded over-the-counter are valued
using a broker quotation or an internal valuation using an options pricing model such as
Black-Scholes.
When the Plan writes an option, the premium received is recorded as a liability and is subsequently
adjusted to the current fair value of the option written. Premiums received from writing options
that expire unexercised are treated by the Fund on the expiration date as realized gains from
written options. The difference between the premium and the amount paid for a closing purchase,
including brokerage commissions, is also recorded as a realized gain / (loss). When an instrument
is purchased or sold through an exercise of an option, the related premium paid (or received) is
added to (or deducted from) the basis of an instrument acquired or deducted from (or added to) the
proceeds of the instrument sold.
Writing puts and buying calls may increase the Plans exposure to changes in the value of the
underlying instrument. Buying puts and writing calls may decrease the Plans exposure to such
changes. Losses may arise when buying and selling options if there is an illiquid secondary market
for the options, which may cause a party to receive less than would be received in a liquid market,
or if the counterparties do not perform under the term of the options.
The Plan has posted cash collateral of $23,420,000 with the broker.
Below is the summary of the purchased and written options contracts outstanding as of December 31,
2009:
Purchased options
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
|
Expiration |
|
|
|
|
Description |
|
amount |
|
|
date |
|
|
Value |
|
EAFE put option |
|
$ |
455,601 |
|
|
|
12/31/2010 |
|
|
$ |
25,644 |
|
RUT put option |
|
|
61,200 |
|
|
|
12/31/2010 |
|
|
|
3,461 |
|
SPX put option |
|
|
469,190 |
|
|
|
12/31/2010 |
|
|
|
19,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Written options
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional |
|
|
Expiration |
|
|
|
|
Description |
|
amount |
|
|
date |
|
|
Value |
|
EAFE call option |
|
$ |
616,399 |
|
|
|
12/31/2010 |
|
|
$ |
(20,543 |
) |
EAFE put option |
|
|
366,625 |
|
|
|
12/31/2010 |
|
|
|
(9,647 |
) |
RUT call option |
|
|
82,800 |
|
|
|
12/31/2010 |
|
|
|
(6,147 |
) |
RUT put option |
|
|
40,896 |
|
|
|
12/31/2010 |
|
|
|
(740 |
) |
SPX call option |
|
|
634,785 |
|
|
|
12/31/2010 |
|
|
|
(23,104 |
) |
SPX put option |
|
|
373,693 |
|
|
|
12/31/2010 |
|
|
|
(6,977 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(67,158 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total premiums received $40,484,000.
During the year ended December 31, 2009, the Plan used purchased options to protect the portfolio
from adverse movements in securities prices and enhance return.
22
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
During the year ended December 31, 2009, the Plan used written options to protect the portfolio
from adverse movements in securities prices and enhance return. The following summarizes the
written options contracts activity during the year:
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Premiums |
|
|
|
Contracts |
|
|
Received |
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year |
|
|
|
|
|
$ |
|
|
Options written |
|
|
1,984 |
|
|
|
40,484 |
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
1,984 |
|
|
$ |
40,484 |
|
|
|
|
|
|
|
|
The following table presents the values of the derivatives carried on the Statements of Net Assets
and the Statement of Changes in Net Assets of the Master Trust as of December 31, 2009:
Fair Value of Asset and Liability Derivative Contracts at December 31, 2009
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not accounted for as |
|
|
|
|
|
|
|
|
|
Foreign |
|
|
Interest |
|
|
|
|
hedging instruments |
|
Credit |
|
|
Equity |
|
|
Exchange |
|
|
Rate |
|
|
Total |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain on futures contracts * |
|
$ |
|
|
|
$ |
1,587 |
|
|
$ |
|
|
|
$ |
96 |
|
|
$ |
1,683 |
|
Purchased options |
|
|
|
|
|
|
48,790 |
|
|
|
|
|
|
|
|
|
|
|
48,790 |
|
Unrealized gain on foreign exchange
payable |
|
|
|
|
|
|
|
|
|
|
8,004 |
|
|
|
|
|
|
|
8,004 |
|
Unrealized gain on open swap contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,526 |
|
|
|
1,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
50,377 |
|
|
$ |
8,004 |
|
|
$ |
1,622 |
|
|
$ |
60,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on futures contracts * |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
43,165 |
|
|
$ |
43,165 |
|
Options written at value |
|
|
|
|
|
|
67,158 |
|
|
|
|
|
|
|
|
|
|
|
67,158 |
|
Unrealized loss on foreign exchange
receivable |
|
|
|
|
|
|
|
|
|
|
893 |
|
|
|
|
|
|
|
893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
67,158 |
|
|
$ |
893 |
|
|
$ |
43,165 |
|
|
$ |
111,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes cumulative appreciation (depreciation) of futures contracts. Only current days
variation margin is reported within the Statements of Net Assets of the Master Trust. |
Effect of Derivative Instruments on the Statement of Changes in Net Assets of the Master Trust
(in thousands)
|
|
|
|
|
Derivatives not accounted for as hedging |
|
Net Appreciation / |
|
instruments |
|
(Depreciation) |
|
|
|
|
|
|
Futures contracts |
|
$ |
(96,705 |
) |
Foreign currency |
|
|
(8,249 |
) |
Options contracts |
|
|
(18,368 |
) |
Swap contracts |
|
|
1,526 |
|
|
|
|
|
|
|
$ |
(121,796 |
) |
|
|
|
|
23
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
During the year ended December 31, 2009, the average notional value of futures contracts was
$1,892,526,847. The average notional value of options contracts was $620,237,664. For all other
derivative types, the derivative contracts open at December 31, 2009 as a percentage of net assets
were indicative of the volume of derivative activity during the year.
8. Securities Lending
The Master Trust is not restricted from lending securities to other qualified financial
institutions, provided such loans are callable at any time and are at all times fully
collateralized by cash (including both U.S. and foreign currency), cash equivalents or securities
issued or guaranteed by the U.S. government or its agencies and the sovereign debt of foreign
countries. The portfolios may bear the risk of delay in recovery of, or even of rights in, the
securities loaned should the borrower of the securities fail financially. Consequently, loans of
portfolio securities will only be made to firms deemed by the sub advisors to be creditworthy. The
portfolios receive compensation for lending their securities either in the form of fees or by
retaining a portion of interest on the investment of any cash received as collateral. Cash
collateral, if any, is invested in the State Street Quality A Short Term Investment Fund. In June
2009, Securities Lending in the Master Trust was suspended in the separate accounts of the Defined
Contribution plan. However, there are a select number of collective funds in the Defined
Contribution plan that continue to lend securities.
All collateral received will be in an amount equal to at least 100% of the market value of the
loaned securities and is intended to be maintained at that level during the period of the loan. The
value of the collateral on-hand at December 31, 2009 and 2008 was $0 and $111,294,118,
respectively. The Plan bears the risk of loss with respect to the investment of collateral. The
market value of the loaned securities is determined at the close of business of the portfolio and
any additional required collateral is delivered to the portfolio the next business day. The market
value of the loaned securities at December 31, 2009 and 2008 was $0 and $111,662,906, respectively.
During the loan period, the portfolio continues to retain rights of ownership, including dividends
and interest of the loaned securities. Loan income generated from securities lending arrangements
was $314,669 for the year ended December 31, 2009. The income from securities lending is included
in the other income line item on the statement of changes in net assets of the Master Trust.
9. Related Party Transactions
The Plan, along with the Savings Plan of Xerox Corporation and the Xerographic Division, Rochester
Regional Joint Board on Behalf of Itself and Other Regional Joint Boards (formerly The Savings
Plan of
Xerox Corporation and The Xerographic Division, UNITE HERE) (the Plans), invest in a unitized
stock fund, The Xerox Stock Fund (the Fund), which is primarily comprised of Xerox Corporation
common shares. The unit values of the Fund are recorded and maintained by the Trustee. During the
year ended December 31, 2009, the Plans purchased common shares in the Fund in the approximate
amount of $24,542,000, sold common shares in the Fund in the approximate amount of $23,036,000, and
had net appreciation in the Fund of approximately $12,233,000. The total value of the Plans
investment in the Fund was approximately $125,094,000 and $111,355,000 at December 31, 2009 and
2008, respectively. During 2009, dividends paid on Xerox Corporation common shares amounted to
$2,612,000. These transactions, as well as participant loans, qualify as party-in-interest
transactions. Furthermore, the Plan pays administrative expenses related to salaries of Xerox
employees responsible for plan administration. In addition, certain funds are managed by an
affiliate of the Trustee and the investment manager and therefore, qualify as party-in-interest
transactions. An affiliate of the Trustee serves as the securities lending agent for the Master
Trust and received fees for these services. The Plan also accepts rollovers from affiliated plans,
the Xerox Corporation Retirement Income Guarantee Plan (RIGP) and the Xerox Corporation Employee
Stock Ownership Plan (ESOP), and these transactions qualify as party-in-
24
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
interest. During the year
ended December 31, 2009 there was one transfer of $293,000 from the Savings Plan of Xerox
Corporation and the Xerographic Division, Rochester Regional Joint Board on Behalf of Itself and
Other Regional Joint Boards to the Plan.
10. Commitments and Contingencies
In the normal course of business, the Plan enters into agreements that contain a variety of
representations and warranties which provide general indemnifications. The Plans maximum exposure
under these arrangements is unknown as this would involve future claims that may be made against
the Plan that have not yet occurred. However, based on experience, the Plan expects the risk of
loss to be remote.
The Master Trust is committed to invest $876,703,724 in certain private equity and real estate
funds, of which $746,107,000 has been contributed as of December 31, 2009.
11. Litigation
Patti v. Xerox Corporation et al
In Re Xerox Corp. ERISA Litigation
On July 1, 2002, a class action complaint captioned Patti v. Xerox Corp. et al. was filed in the
United States District Court for the District of Connecticut (Hartford) alleging violations of the
ERISA. Four additional class actions were subsequently filed, and the five actions were
consolidated as In Re Xerox Corporation ERISA Litigation. The purported class includes all persons
who invested or maintained investments in the Xerox Stock Fund in the Xerox 401(k) Plans (either
salaried or union) during the proposed class period, May 12, 1997 through November 15,
2002. Plaintiffs alleged that the defendants failed to provide accurate and complete material
information to participants concerning Xerox stock, including accounting practices which allegedly
artificially inflated the value of the stock, and misled participants regarding the soundness of
the stock and the prudence of investing their retirement assets in Xerox stock.
On April 13, 2009, the court held a fairness hearing and entered an order giving its final approval
to the settlement. The distribution of the settlement was completed in November, 2009 and the
Plans portion of such settlement ($31,773,202) is included as Employer Settlement Allocation in
the Statement of Changes in Net Assets. The Company and the other defendants did not admit any
wrongdoing as a part of the settlement.
SEC Fair Fund Settlement
In January 2003, the Securities and Exchange Commission filed a complaint against Xeroxs former
auditor and certain partners of that firm. The litigation was settled in April 2005 for $22
million. Separately, in June 2003, six Xerox Corporation executives settled with the SEC for an
aggregate amount of $22 million. The SEC established the Xerox SEC Fair Fund comprised of monies
paid in connection
with these two settlements, plus accrued interest. In March 2008, the Master Trust received $1.8
million from the Xerox SEC Fair Fund relating to its portion of the settlement to be allocated
between the participating plans in the Master Trust. The distribution of the settlement was
completed in December, 2009 and the Plans portion of such settlement ($1,670,012) is included as
Employer Settlement Allocation in the Statement of Changes in Net Assets.
Carlson v. Xerox Corporation, et al.
The Plan is a member of the plaintiff class in a consolidated securities law action (consisting of
21 cases) that was pending in the United States District Court for the District of Connecticut
against the Company, KPMG and Paul A. Allaire, G. Richard Thoman, Anne M. Mulcahy, Barry D.
Romeril, Gregory Tayler and Philip Fishbach. Plaintiffs purported to bring this case as a class
action on behalf of a class consisting of all persons and/or entities, including the Plan, who
purchased Xerox common stock and/or bonds during
25
Xerox Corporation Savings Plan
Notes to Financial Statements
December 31, 2009 and 2008
the period between February 17, 1998 through June
28, 2002 and who were purportedly damaged thereby (Class). Two claims were asserted: one alleging
that each of the Company, KPMG, and the individual defendants violated Section 10(b) of the 1934
Act and SEC Rule 10b-5 there under; and the other alleging that the individual defendants are also
liable as controlling persons of the Company pursuant to Section 20(a) of the 1934 Act. On
January 15, 2009, the Court entered an order and final judgment approving the settlement, awarding
attorneys fees and expenses, and dismissing the action with prejudice.
In December, 2009, the Master Trust received $29.4 million relating to its portion of the
settlement to be allocated between the participating plans in the Master Trust. The distribution
of the settlement was completed in January, 2010 and the Plans portion of such settlement
($26,680,412) is included as Employer Settlement Allocation in the Statement of Changes in Net
Assets.
26
Xerox Corporation Savings Plan
Supplemental Schedule
Schedule H, Part IV, Item 4i Schedule of Assets (Held at End of Year)
December 31, 2009 and 2008
(in thousands)
|
|
|
|
|
|
|
|
|
Identity of Issuer, |
|
Description of Investment Including |
|
|
|
|
|
Borrower, Lessor, |
|
Maturity Date, Rate of Interest, |
|
|
|
Current |
|
or Similar Party |
|
Collateral, Par or Maturity Value |
|
Cost |
|
Value |
|
|
|
|
|
|
|
|
|
|
* Investment interest in Master Trust |
|
See Note 4 |
|
** |
|
$ |
3,998,947 |
|
|
|
|
|
|
|
|
|
|
* Participant loans |
|
Loans to plan participants, maturity dates |
|
|
|
|
|
|
|
|
through 2023, interest rates on |
|
|
|
|
|
|
|
|
outstanding loans from 4.25% to 10.50%, |
|
|
|
|
|
|
|
|
per annum |
|
|
|
|
72,906 |
|
|
|
|
|
|
|
|
|
|
Adjustment from fair value to contract
value for the Master Trusts interest in
collective trust relating to fully benefit
responsive investment contracts |
|
|
|
|
|
|
16,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,088,776 |
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Party-in-interest. |
|
** |
|
Cost is omitted for participant-directed investments. |
27
exv99w2
Exhibit 99.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.
333-160264) of Xerox Corporation of our report dated June 15, 2010 relating to the financial
statements of Xerox Corporation Saving Plan, which appears in this Form 11-K.
/s/
PricewaterhouseCoopers LLP
Stamford, Connecticut
June 15, 2010