Xerox 2009 Annual Report Download - page 57

55Xerox 2009 Annual Report
Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
Note 3 – Acquisitions
Affiliated Computer Services, Inc.
In September 2009, we entered into a definitive agreement to acquire
Affiliated Computer Services, Inc. (“ACS”) in a cash and stock transaction.
The acquisition closed on February 5, 2010, at which time 100% of
the outstanding shares of ACS common stock were converted into a
combination of 4.935 shares of Xerox common stock and $18.60 in cash
for a combined value of $60.40 per share, or approximately $6.0 billion
based on the closing price of Xerox common stock of $8.47 on date of
closing. Approximately 489,800 thousand shares of common stock were
issued to holders of ACS Class A and Class B common stock.
Xerox assumed all outstanding ACS stock options at closing. Each
assumed ACS option became exercisable for 7.085289 Xerox common
shares for a total of approximately 96,700 thousand shares at a
weighted average exercise price of $6.79 per option. The estimated
fair value associated with the Xerox options issued in exchange for
the ACS options was approximately $222 based on a Black-Scholes
valuation model. Approximately $168 of the estimated fair value is
expected to be recorded as part of the acquisition fair value and $54
will be expensed over the remaining vesting period which is estimated
to be approximately 3.9 years.
As part of the closing, we repaid $1.7 billion of ACS’s debt and assumed
an additional $0.6 billion. We also issued convertible preferred stock
with a liquidation value of $300 to ACS’s Class B shareholder (see Note
17 – Shareholders’ Equity for further information). The cash portion of
the acquisition, as well as the repayment of ACS’s debt, was funded
through a combination of cash-on-hand, borrowing under our existing
Credit Facility and the issuance of senior notes in the capital markets.
(Refer to Note 11 – Debt for further information.)
ACS provides business process outsourcing (“BPO”) and information
technology (“IT”) services and solutions to commercial and government
clients worldwide. ACS delivers a full range of BPO and IT services, as
well as end-to-end solutions to the public and private sectors, and
supports a variety of industries including education, energy, financial,
government, healthcare, retail and transportation. ACS’s revenues for
the calendar year ended December 31, 2009 were $6.6 billion and they
employed 78,000 people and operated in over 100 countries.
All information regarding the fair values of the assets acquired and
liabilities assumed, including assets and liabilities arising from con-
tingencies, is not yet available. However, the purchase price is expected
to be primarily allocated to intangible assets and goodwill based on
third-party valuations and management’s estimates, which have not
yet been finalized.
The following is a reconciliation of segment profit to pre-tax income (loss):
Year Ended December 31,
2009 2008 2007
Total Segment Profit $ 778 $ 1,291 $ 1,588
Reconciling items:
Restructuring and asset impairment charges 8 (429) 6
Restructuring charges of Fuji Xerox (46) (16) (30)
Litigation matters(1) — (774) —
Equipment write-off — (39) —
ACS acquisition-related costs (72) — —
Equity in net income of unconsolidated affiliates (41) (113) (97)
Other — 1 1
Pre-tax Income (Loss) $ 627 $ (79) $ 1,468
(1) The 2008 provision for litigation represents $670 for the Carlson v. Xerox Corporation court-approved settlement, as well as provisions for other litigation matters including
$36 for the probable loss related to the Brazil labor-related contingencies. Refer to Note 16 – Contingencies for further discussion.
Geographic area data is based upon the location of the subsidiary reporting the revenue or long-lived assets and is as follows:
Revenues Long-lived Assets(1)
2009 2008 2007 2009 2008 2007
United States $ 8,156 $ 9,122 $ 9,078 $ 1,245 $ 1,386 $ 1,375
Europe 4,971 6,011 5,888 717 680 746
Other Areas 2,052 2,475 2,262 260 248 341
Total Revenues and Long-lived Assets $ 15,179 $ 17,608 $ 17,228 $ 2,222 $ 2,314 $ 2,462
(1) Long-lived assets are comprised of (i) land, buildings and equipment, net, (ii) equipment on operating leases, net, (iii) internal use software, net and iv) capitalized software costs, net.