Xerox 2010 Annual Report Download - page 71

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
69Xerox 2010 Annual Report
The following is a summary of the funded position of the assumed ACS
plans as of the acquisition date, as well as associated weighted-average
assumptions used to determine benefit obligations:
Estimated Fair Value
Projected benefit obligation $ 142
Fair value of plan assets 111
Net Unfunded Status $ (31)
Amounts recognized in the Consolidated Balance Sheets:
Other long-term assets $ 8
Pension liabilities (39)
Net Amount Recognized $ (31)
Weighted average assumption used to determine benefit obligations at
the acquisition date and net periodic benefit cost from the acquisition
date through December 31, 2010:
Discount rate 5.7%
Expected rate of return on plan assets 6.9%
Rate of compensation increase 3.9%
Change-in-control liabilities: We assumed liabilities due under
contractual change-in-control provisions in employment agreements
of certain ACS employees and its Chairman of approximately $95 ($15
current; $80 non-current). The liabilities include accruals for related
excise and other taxes we are obligated to pay on these obligations.
Contingent consideration: Although there is no contingent
consideration associated with our acquisition of ACS, ACS is obligated to
make contingent payments in connection with prior acquisitions upon
satisfaction of certain contractual criteria. Contingent consideration
obligations must be recorded at their respective fair value. As of the
acquisition date, the maximum aggregate amount of ACS’s outstanding
contingent obligations to former shareholders of acquired entities
was approximately $46, of which $11 was recorded representing the
estimated fair value of this obligation. We made contingent payments
of $8 in 2010 which are reflected within investing activities in the
Consolidated Statements of Cash Flows. As of December 31, 2010, the
maximum aggregate amount of the outstanding contingent obligations
to former shareholders of acquired entities was approximately $5.
Goodwill: Goodwill in the amount of $5.1 billion was recognized for
this acquisition and is calculated as the excess of the consideration
transferred over the net assets recognized and represents the future
economic benefits arising from other assets acquired that could not
be individually identified and separately recognized. Specifically, the
goodwill recorded as part of the acquisition of ACS includes:
The expected synergies and other benefits that we believe will result
•
from combining the operations of ACS with the operations of Xerox;
Any intangible assets that do not qualify for separate recognition such
•
as the assembled workforce; and
The value of the going-concern element of ACS’s existing businesses
•
(the higher rate of return on the assembled collection of net assets
versus acquiring all of the net assets separately).
Intangible assets: The following table is a summary of the fair value
estimates of the identifiable intangible assets and their weighted-
average useful lives:
Estimated Fair Value Estimated Useful Life
Customer relationships/contracts $ 2,920 11.6 years
ACS tradename 100 4 years
Buck tradename 10 (1)
Title plant 5 (2)
Total Identifiable Intangible Assets $ 3,035
(1) Determined to be an indefinite-lived asset.
(2) Title plant is not subject to depreciation or charged to earnings based on ASC Topic
950 – Financial Services – Title Plant, unless circumstances indicate that the carrying
amount of the title plant has been impaired.
Deferred revenue: As part of our purchase price allocation, we revalued
ACS’s existing deferred revenue to fair value based on the remaining
post-acquisition service obligation. The total revaluation adjustment
was $133 ($53 current; $80 non-current) and represented the value
for services already rendered for which no future obligation to provide
services remains. Post-acquisition, revenue will accordingly be reduced
for the value of this adjustment. Accordingly, the remaining balance
of deferred revenue included in the above of $161 ($145 current; $16
non-current) primarily represents our estimate of the fair value for the
remaining service obligation.
Deferred taxes: We provided deferred taxes and recorded other tax
adjustments as part of the accounting for the acquisition primarily
related to the estimated fair value adjustments for acquired intangible
assets, as well as the elimination of a previously recorded deferred tax
liability associated with ACS’s historical goodwill that was tax deductible.
In addition, we also provided deferred taxes of $48 for the outside basis
difference associated with certain foreign subsidiaries of ACS for which
no taxes have been previously provided. We expect to reverse the outside
basis difference primarily through repatriating earnings from those
subsidiaries in lieu of permanently reinvesting them as well as through
the reorganization of those subsidiaries.
Debt: We repaid $1.7 billion of ACS’s debt and assumed an additional
$0.6 billion. The following is a summary of the third-party debt assumed
and not repaid in connection with the close of the acquisition:
4.70% Senior Notes due June 2010 $ 250
5.20% Senior Notes due June 2015 250
Capital lease obligations and other debt 64
Principal debt balance 564
Fair value adjustments 13
Total Debt Assumed But Not Repaid $ 577
Pension obligations: We assumed several defined benefit pension
plans covering the employees of ACS’s human resources consulting and
outsourcing business in the U.S., U.K., Germany and Canada. The plans in
the U.S. and Canada are both funded and unfunded; the plan in the U.K.
is funded; and the plan in Germany is unfunded.