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40
Management’s Discussion
Xerox 2010 Annual Report
Acquisition-Related Costs
Costs of $77 million were incurred during 2010 in connection with
our acquisition of ACS. These costs include $53 million of transaction
costs, which represent external costs directly related to completing the
acquisition of ACS and primarily include expenditures for investment
banking, legal, accounting and other similar services. Legal costs include
costs associated with the ACS shareholders litigation which was settled
in 2010. The remainder of the acquisition-related costs represents
external incremental costs directly related to the integration of ACS
and Xerox. These costs include expenditures for consulting, systems
integration, corporate communication services and the consolidation of
facilities, as well as the expense associated with the performance shares
that were granted to ACS management in connection with existing
change-in-control agreements.
Costs of $72 million were incurred during 2009, in connection with our
acquisition of ACS. $58 million of the costs relate to the write-off of
fees associated with the Bridge Loan Facility commitment which was
terminated as a result of securing permanent financing to fund the
acquisition. The remainder of the costs represents transaction costs such
as banking, legal and accounting fees, as well as some pre-integration
costs such as external consulting services.
Amortization of Intangible Assets
During 2010, we recorded $312 million for the amortization of
intangibles assets, which was $252 million higher than 2009. The
increase primarily reflects the amortization of intangibles associated
with our acquisition of ACS. Refer to Note 3 – Acquisitions in the
Consolidated Financial Statements for additional information regarding
the ACS acquisition.
Amortization of intangibles was $60 million in 2009 which was an
increase of $6 million over 2008, primarily as a result of the full-year
amortization of the assets acquired as part of our acquisitions in 2008.
Worldwide Employment
Worldwide employment of 136,500 as of December 31, 2010 increased
approximately 83,000 from December 31, 2009, primarily due to the
additional headcount related to the ACS acquisition partially offset by
restructuring reductions. Worldwide employment was approximately
53,600 and 57,100 at December 31, 2009 and 2008, respectively.
$19 million loss associated with the sale of our Venezuelan subsidiary.
•
The loss primarily reflects the write-off our Venezuelan net assets
including working capital and long-lived assets. We will continue to
sell equipment, parts and supplies to the acquiring company through
a distribution arrangement but will no longer have any direct or local
operations in Venezuela. The sale of our operations and change in
business model follows a decision by management in the fourth
quarter 2010 to reduce the Company’s future exposure and risk
associated with operating in this unpredictable economy.
The above charges were partially offset by $41 million of net reversals
for changes in estimated reserves from prior-period initiatives.
We expect 2011 pre-tax savings of approximately $270 million from
our 2010 restructuring actions and approximately $475 million of
annualized savings once all actions are fully implemented.
2009Activity
Restructuring activity was minimal in 2009, and the related charges
primarily reflected changes in estimates in severance costs from
previously recorded actions.
2008Activity
During 2008, we recorded $357 million of net restructuring charges
predominantly consisting of severance and costs related to the
elimination of approximately 4,900 positions primarily in North America
and Europe. Focus areas for these actions include the following:
Improving efficiency and effectiveness of infrastructure including:
•
marketing, finance, human resources and training
Capturing efficiencies in technical services, managed services, and
•
supply chain and manufacturing infrastructure
Optimizing product development and engineering resources
•
In addition, related to these activities, we also recorded lease
cancellation and other costs of $19 million and asset impairment
charges of $53 million. The lease termination and asset impairment
charges primarily related to: (i) the relocation of certain manufacturing
operations including the closing of our toner plant in Oklahoma City and
the consolidation of our manufacturing operations in Ireland; and (ii) the
exit from certain leased and owned facilities as a result of the actions
noted above.
RestructuringSummary
The restructuring reserve balance as of December 31, 2010 for all
programs was $323 million, of which approximately $309 million
is expected to be spent over the next 12 months. Refer to Note 9 –
Restructuring and Asset Impairment Charges in the Consolidated
Financial Statements for additional information regarding our
restructuring programs.