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Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
100 Xerox 2010 Annual Report
We grant PSs and RSUs in order to continue to attract and retain employees
and to better align employees’ interests with those of our shareholders.
Each of these awards is subject to settlement with newly issued shares of
our common stock. At December 31, 2010 and 2009, 30 million and 15
million shares, respectively, were available for grant of awards.
Stock-based compensation expense for the three years ended December
31, 2010 was as follows:
2010 2009 2008
Stock-based compensation
expense, pre-tax $ 123 $ 85 $ 85
Income tax benefit recognized
in earnings 47 33 33
Restricted stock units: Compensation expense is based upon the grant
date market price for most awards and a Monte Carlo simulation pricing
model for a grant in 2009 that included a market condition; the expense
is recorded over the vesting period, which ranges from three to five
years from the date of grant. A summary of the activity for RSUs as of
December 31, 2010, 2009 and 2008, and changes during the years then
ended, is presented below (shares in thousands):
Performance shares: We grant officers and selected executives PSs that
vest contingent upon meeting pre-determined Earnings per Share (“EPS”)
and Cash Flow from Operations targets. These shares entitle the holder
to one share of common stock, payable after a three-year period and
the attainment of the stated goals. If the cumulative three-year actual
results for EPS and Cash Flow from Operations exceed the stated targets,
then the plan participants have the potential to earn additional shares
of common stock. This overachievement can not exceed 50% for officers
and 25% for non-officers of the original grant.
In connection with the ACS acquisition, selected ACS executives received a
special one-time grant of PSs that vest over a three-year period contingent
upon ACS meeting pre-determined annual earnings targets. These shares
entitle the holder to one share of common stock, payable after the three-
year period and the attainment of the targets. The aggregate number of
shares that may be delivered based on achievement of the targets was
determined on the date of grant and ranges in value as follows: 50% of
base salary (threshold); 100% of base salary (target); and 200% of base
salary plus 50% of the value of the August 2009 options (maximum).
The following table reflects the changes in Common and
Treasury stock shares for the three years ended December 31, 2010
(shares in thousand):
Common Stock Shares Treasury Stock Shares
Balance at December 31, 2007 919,013 (1,836)
Stock option and incentive plans, net 4,442 —
Acquisition of Treasury stock — (56,842)
Cancellation of Treasury stock (58,678) 58,678
Balance at December 31, 2008 864,777 —
Stock option and incentive plans, net 4,604 —
Balance at December 31, 2009 869,381 —
ACS acquisition(1) 489,802 —
Stock option and incentive plans, net 38,395 —
Balance at December 31, 2010 1,397,578 —
(1) Refer to Note 3 – Acquisitions for additional information.
Stock-Based Compensation
We have a long-term incentive plan whereby eligible employees may be
granted restricted stock units (“RSUs”), performance shares (“PSs”) and
non-qualified stock options.
At December 31, 2010, the aggregate intrinsic value of RSUs
outstanding was $374. The total intrinsic value and actual tax benefit
realized for the tax deductions for vested RSUs for the three years ended
December 31, 2010 were as follows:
Vested Restricted Stock Units 2010 2009 2008
Total intrinsic value of
vested RSUs $ 31 $ 19 $ 54
Tax benefit realized for
vested RSUs tax deductions 10 6 18
At December 31, 2010, there was $135 of total unrecognized
compensation cost related to nonvested RSUs, which is expected to be
recognized ratably over a remaining weighted-average contractual term
of 1.7 years.
2010 2009 2008
Weighted Weighted Weighted
Average Grant Average Grant Average Grant
Nonvested Restricted Stock Units Shares Date Fair Value Shares Date Fair Value Shares Date Fair Value
Outstanding at January 1 25,127 $ 10.18 14,037 $ 15.43 11,696 $ 16.78
Granted 11,845 8.56 15,268 6.69 5,923 13.63
Vested (3,671) 18.22 (3,764) 15.17 (3,350) 16.92
Cancelled (870) 10.36 (414) 13.94 (232) 15.98
Outstanding at December 31
32,431 8.68 25,127 10.18 14,037 15.43