Xerox 2010 Annual Report Download - page 103

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
101Xerox 2010 Annual Report
A summary of the activity for PSs as of December 31, 2010, 2009 and
2008, and changes during the years then ended, is presented below
(shares in thousands):
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 4,874 $ 15.49 7,378 $ 15.39 6,585 $ 16.16
Granted 5,364 8.10 718 15.17 3,696 13.67
Vested (1,566) 18.48 (3,075) 15.17 (2,734) 14.87
Cancelled (901) 15.51 (147) 15.52 (169) 16.05
Outstanding at December 31
7,771 9.78 4,874 15.49 7,378 15.39
ACS Acquisition: In connection with the acquisition of ACS (see Note
3 – Acquisitions for further information), outstanding ACS options were
converted into 96,662 thousand Xerox options. The Xerox options have a
weighted average exercise price of $6.79 per option. The estimated fair
value associated with the options issued was approximately $222 based
on a Black-Scholes valuation model utilizing the assumptions stated
below. Approximately $168 of the estimated fair value is associated with
ACS options issued prior to August 2009, which became fully vested and
exercisable upon the acquisition in accordance with pre-existing change-
in-control provisions, was recorded as part of the acquisition fair value.
The remaining $54 is associated with ACS options issued in August 2009
which continue to vest according to their original terms and, therefore, is
being expensed as compensation cost over the remaining vesting period.
The options generally expire 10 years from date of grant.
Pre-August 2009 August 2009
Assumptions Options Options
Strike price $ 6.89 $ 6.33
Expected volatility 37.90% 38.05%
Risk-free interest rate 0.23% 1.96%
Dividend yield 1.97% 1.97%
Expected term 0.75 years 4.2 years
The following table provides information relating to the status of, and
changes in, outstanding stock options for each of the three years ended
December 31, 2010 (stock options in thousands):
At December 31, 2010, the aggregate intrinsic value of PSs outstanding
was $90. The total intrinsic value of PSs and the actual tax benefit
realized for the tax deductions for vested PSs for the three years ended
December 31, 2010 was as follows:
Vested Performance Shares 2010 2009 2008
Total intrinsic value of vested PSs $ 12 $ 15 $ 41
Tax benefit realized for vested PSs
tax deductions 5 6 13
We account for PSs using fair value determined as of the grant date.
If the stated targets are not met, any recognized compensation cost
would be reversed. As of December 31, 2010, there was $45 of total
unrecognized compensation cost related to nonvested PSs; this cost is
expected to be recognized ratably over a remaining weighted-average
contractual term of 1.8 years.
Stock options
Employee stock options: With the exception of the stock options issued
in connection with the ACS acquisition (see below), we have not issued
any new stock options associated with our employee long-term incentive
plan since 2004. All stock options previously issued under our employee
long-term incentive plan and currently outstanding are fully vested and
exercisable and generally expire between eight and 10 years from the
date of grant.
2010 2009 2008
Weighted Weighted Weighted
Stock Average Stock Average Stock Average
Employee Stock Options Options Option Price Options Option Price Options Option Price
Outstanding at January 1 28,363 $10.13 45,185 $15.49 52,424 $19.73
Granted – ACS acquisition 96,662 6.79 — — — —
Cancelled/Expired (2,735) 7.33 (16,676) 24.68 (6,559) 50.08
Exercised (51,252) 6.92 (146) 5.88 (680) 8.89
Outstanding at December 31 71,038 8.00 28,363 10.13 45,185 15.49
Exercisable at December 31 57,985 8.38 28,363 10.13 45,185 15.49