Xerox 2004 Annual Report Download - page 83

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The 2004, 2003 and 2002 computation of diluted
earnings per share did not include the effects of
38 million, 63 million and 64 million stock options,
respectively, because their respective exercise prices
were greater than the corresponding market value
per share of our common stock.
In addition, in 2003 and 2002 the following
potentially dilutive securities were not included in
the computation of diluted EPS because to do so
would have been anti-dilutive (in thousands of shares
on weighted-average basis):
2003 2002
Series C Mandatory Convertible
Preferred Stock 43,656 —
Liability to subsidiary trust issuing
preferred securities – Trust II 113,426 113,426
Convertible subordinated debentures 1,992 9,121
Total 159,074 122,547
All such securities were dilutive or converted to
common stock in 2004.
Note 18 – Divestitures and Other Sales
During the three years ended December 31, 2004, the
following significant transactions occurred:
ScanSoft: In April 2004, we completed the sale of our
ownership interest in ScanSoft, Inc. (“ScanSoft”) to
affiliates of Warburg Pincus for approximately $79 in
cash, net of transaction costs. Prior to the sale, we
beneficially owned approximately 15% of ScanSoft’s
outstanding equity interests. The sale resulted in a
pre-tax gain of $38. Prior to this transaction, our
investment in ScanSoft was accounted for as an
“available for sale” investment. The gain is classified
within Other expenses, net in the accompanying
Consolidated Statements of Income.
ContentGuard: In March 2004, we sold all but
2percent of our 75percent ownership interest in
ContentGuard Inc, (“ContentGuard”) to Microsoft
Corporation and Time Warner Inc. for $66 in cash.
The sale resulted in a pre-tax gain of $109as our
investment reflected the recognition of cumulative
operating losses. The gain on sale has been presented
within the accompanying consolidated statements
of income considering the reporting requirements
related to discontinued operations of SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-
Lived Assets.” The revenues, operating results and net
assets of ContentGuard were immaterial for all periods
presented. ContentGuard, which was originally creat-
ed out of research developed at the Xerox Palo Alto
Research center (PARC), licenses intellectual property
and technologies related to digital rights management.
Xerox Engineering Systems: In the second quarter
2003, we sold our XES subsidiaries in France and
Germany for a nominal amount and recognized a
loss of $12.
Nigeria: In December 2002, we sold our remaining
investment in Nigeria for a nominal amount and
recognized a loss of $35, primarily representing
cumulative translation adjustment losses which
were previously unrealized.
Licensing Agreement: In September 2002, we
signed a license agreement with a third party, related
to a nonexclusive license for the use of certain of
our existing patents. In October 2002, we received
proceeds of $50 and granted the license. We have no
continuing obligation or other commitments to the
third party and recorded the income associated with
this transaction as revenue in Service, outsourcing
and rentals in the accompanying Consolidated
Statement of Income.
Katun Corporation: In July 2002, wesold our
22percent investment in Katun Corporation, a supplier
of aftermarket copier/printer parts and supplies,
for net proceeds of $67. This sale resulted in a pre-tax
gain of $12, which is included in Other expenses, net,
in the accompanying Consolidated Statements of
Income. After-tax, the sale was essentially break-
even, as the taxable basis of Katun was lower than
our carrying value on the sale date resulting in a high
rate of income tax.
Italy Leasing Business: In April 2002, we sold our
leasing business in Italy to a company now owned by
GE for $200 in cash plus the assumption of $20 of debt.
This sale is part of an agreement under which GE, as
successor, provides ongoing, exclusive equipment
financing to our customers in Italy. The total pre-tax
loss on this transaction, which is included in Other
expenses, net, in the accompanying Consolidated
Statements of Income, was $27 primarily related to
recognition of cumulative translation adjustment
losses and final sale contingency settlements.