Notes to the Consolidated Financial Statements
(Dollars in millions, except per-share data and unless otherwise indicated)
Note 3 – Acquisitions
Global Imaging Systems, Inc: In May 2007, we acquired GIS, a provider of office technology for small and mid-size businesses in the United States for cash consideration of $29 per common share. The acquisition of GIS expanded our access to the U.S. small and mid-size business market. The aggregate purchase price was approximately $1.5 billion, consisting of cash paid for outstanding stock, vested employee stock options and restricted stock and direct transaction costs. In addition, in connection with the closing, we also repaid $200 of GIS’ outstanding bank debt. The results of operations for GIS are included in our Consolidated Statements of Income as of May 9, 2007, the effective date of acquisition. Refer to Note 2 – Segment Reporting for a discussion of the segment classification of GIS.
The total cost of the acquisition has been allocated to the assets acquired and the liabilities assumed based on their respective estimated fair values. Goodwill and other intangibles recorded in connection with the acquisition totaled $1.7 billion based on third-party valuations and management’s estimates for those acquired intangible assets. Aggregate amortization expense associated with the intangibles acquired as part of the acquisition was $16 for 2007. The primary elements that generated goodwill are the value of the acquired assembled workforce, specialized processes and procedures and operating synergies, none of which qualify as a separate intangible asset.
The fair values of assets acquired and liabilities assumed at the acquisition date as reflected in the financial statements are as follows:
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As of May 9,
2007 |
Weighted-Average Useful Life | |||||
|
Current assets (includes cash of $2) |
$ | 291 | ||||
|
Other long-term assets |
41 | |||||
|
Goodwill |
1,323 | n/a | ||||
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Intangible assets: |
||||||
|
Customer relationships |
189 | 12 years | ||||
|
Tradenames |
174 | 20 years | ||||
|
Total assets acquired |
2,018 | |||||
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Current liabilities |
(162 | ) | ||||
|
Long-term liabilities |
(325 | ) | ||||
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Net assets acquired |
$ | 1,531 | ||||
The unaudited pro forma results presented below include the effects of the GIS acquisition as if it had been consummated as of January 1, 2006. The pro-forma results include the amortization associated with the estimated value of acquired intangible assets and interest expense associated with debt used to fund the acquisition. However, pro forma results do not include any anticipated synergies or other expected benefits of the acquisition. Accordingly, the unaudited pro forma financial information below is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition been consummated as of January 1, 2006.
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Year Ended
December 31, |
||||||
| 2007 | 2006 | |||||
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Revenue |
$ | 17,619 | $ | 16,992 | ||
|
Net income |
1,139 | 1,222 | ||||
|
Basic earnings per share |
1.22 | 1.26 | ||||
|
Diluted earnings per share |
1.20 | 1.23 | ||||
Advectis, Inc: In October 2007, we acquired Advectis, Inc. (“Advectis”), a privately-owned provider of a web-based solution to electronically manage the process needed to underwrite, audit, collaborate, deliver and archive mortgage loan documents for $30 in cash. The purchase agreement requires us to pay the sellers an additional $11 if certain performance conditions are achieved over the next three years. The operating results of Advectis are not material to our financial statements, and are included within our Other segment from the date of acquisition. The purchase price is expected to be primarily allocated to intangible assets and goodwill and will be based on management’s estimates which have not yet been finalized.
GIS Acquisitions: In the latter half of 2007, GIS acquired four businesses that provide office-imaging solutions and related services for $39 in cash. The operating results of these entities are not material to our financial statements, and are included within our Office segment from the date of acquisition as part of GIS. The purchase prices are expected to be primarily allocated to intangible assets and goodwill and will be based on management’s estimates which have not yet been finalized.
De Lage Landen Joint Venture: In July 2007, we purchased De Lage Landen’s (“DLL”) 51% ownership interest in our lease financing joint venture in the Netherlands. Refer to Note 4 – Receivables, Net for more information regarding this purchase.
XMPie, Inc: In November 2006, we acquired the stock of XMPie, Inc. (“XMPie”), a provider of variable information software, for $54 in cash, including transaction costs. XMPie’s software enables printers and marketers to create and print personalized and customized marketing materials to help improve response rates. We had an existing relationship with XMPie, as its largest reseller, and its software is primarily sold together with our Production systems including the iGen3.
The operating results of XMPie are not material to our financial statements, and are included within our Production segment from the date of acquisition. The purchase price was allocated to Goodwill $48, Intangible assets, net $9 and Deferred tax liabilities $(3). The primary element that generated the Goodwill is the value of synergies between the entities, which do not qualify as an amortizable intangible asset. The allocations were based on third-party valuations and management’s estimates.
Amici LLC: In July 2006, we acquired all of the net assets of Amici LLC (“Amici”), a provider of electronic-discovery (e-discovery), services for $175 in cash, including transaction costs. Amici provides comprehensive litigation discovery management services, including the conversion, hosting and production of electronic and hardcopy documents. Amici also provides consulting and professional services to assist attorneys in the discovery process. The purchase agreement requires us to pay the sellers an additional $20 if certain performance targets are achieved in 2008, which would be an addition to the acquired cost of the entity. The operating results of Amici were not material to our financial statements and are included within our Other segment from the date of acquisition.
The purchase price was allocated to Net assets $2, Intangible assets $37 (consisting of customer relationships of $29 and software of $8), and Goodwill of $136. The primary elements that generated the Goodwill are the value of synergies and the acquired assembled workforce, neither of which qualify as a separate intangible asset. The allocations were based on third-party valuations and management’s estimates.
