Digging into Xerox’s 10-K…

Today’s the deadline for the many companies that are on a calendar year to get their 10Ks in to the SEC, and the folks here at footnoted couldn’t be happier. We won’t bore you with how we spent our respective weekends combing through over 900 alerts to assemble a hefty spreadsheet of all the different things that companies tried to dump in these filings, some of which topped over 1,600 pages! We’ll be sharing our best finds with subscribers to FootnotedPro.

But we thought the 10-K filed by Xerox (XRX) late Friday was a good one to talk about here for several reasons. For one, we’ve been pretty skeptical about the recently approved acquisition of Affiliated Computer Services (old ticker: ACS), which Xerox promises will expand its reach in the business process and document management markets. Yet, there is some positive news. For example, Xerox obtained 16% more patents in 2009 than in 2008. And this article points out that Xerox reported a 4Q 2009 profit of $180 million (although it adds that —the improvement was driven entirely by [its] success in paring its costs).

If you look deeper, though, you might just end up with that annoyed feeling you get when the photocopier jams, you get toner all over your hands, and you still can—t find the crumpled paper that’s supposedly hiding in —Section B of the machine.

The biggest annoyance comes from page 29. Here’s a snippet from the paragraph about the Annual Performance Incentive Plan, or —APIP:

The Compensation Committee approved the payments of cash awards under the Xerox 2004 Performance Incentive Plan (2004 PIP), as amended, for the second half of 2009 APIP. The Compensation Committee had previously approved the awards for the first half of 2009 at its July 2009 meeting—. The Compensation Committee approved a second half 2009 cash award of $1,181,250 to [CEO Ursula] Burns, $1,093,750 to [Chairman of the Board Anne] Mulcahy, $624,750 to [Vice Chairman/CFO Lawrence] Zimmerman, $624,750 to [EVP & President, Corp. Operations James] Firestone, and $491,417 to [Sr. VP & President, Developing Markets Operations Jean-Noel] Machon. These awards, combined with previously approved cash awards for the first half of 2009, result in combined cash awards of $1,884,375 to Ms. Burns, $2,331,250 to Mrs. Mulcahy, $1,071,000 to Mr. Zimmerman, $1,071,000 to Mr. Firestone, and $842,428 to Mr. Machon for full fiscal 2009.

Although the company —explains the awards by referring to this exhibit, handing out millions of dollars seems inconsistent when viewed in the context of what else is going on. For example, we’re guessing that those types of bonuses won’t sit too well with the 2,500 folks that Xerox plans to lay off.

This article points out that Xerox — which is trying —to reverse five straight quarters of sales declines — bought Affiliated Computer Services to help boost its revenues. And this report stated that after the ACS acquisition, S&P lowered Xerox’s ratings to BBB-, one notch above junk status. It also cited an analyst who said that Xerox is —vulnerable to macroeconomic conditions, as demonstrated by the sharp drop in equipment sales in 2009.

But what about the fact that the stock is trading about 80 percent higher than it sold for one year ago? Well, that might seem less impressive after looking at p. 27 of the annual report, where Xerox includes a graph that shows what a $100 investment made on December 31, 2004 would be worth five years later. A hundred dollars invested in the S&P 500 Information Technology Index would have been worth $117.11. A hundred dollars invested in the S&P 500 Index would have been worth $102.11. And a hundred dollars in Xerox? Five years later, it would have been worth $51.97.

Image source: Xerox