Xerox 2002 Annual Report Download - page 86

price for such Trust Preferred Securities may be paid in
cash or our common stock, or a combination thereof. If
the purchase price or any portion thereof consists of
common stock, investors will receive such common
stock at a value of 95 percent of its then prevailing mar-
ket price. Capital II may redeem all, but not part, of the
Trust Preferred Securities for cash, prior to December 4,
2004, only if specified changes in tax and investment
law occur, at a redemption price of 100 percent of their
liquidation amount plus accrued and unpaid distribu-
tions. On or at anytime after December 4, 2004, Capital
II may redeem all or a portion of the Trust Preferred
Securities for cash at declining redemption prices, with
an initial redemption price of 103.75 percent of their
liquidation amount.
Trust I: In 1997, a trust that we sponsored and wholly-
own, issued $650 aggregate liquidation amount of pre-
ferred securities (the “Original Preferred Securities”) to
investors and 20,103 shares of common securities to
us. The proceeds were invested by the trust in $670
aggregate principal amount of our then newly issued
8 percent Junior Subordinated Debentures due 2027
(the “Original Debentures”). Pursuant to a registration
statement that we, along with the trust, filed with the
Securities and Exchange Commission in 1997, the
Original Preferred Securities, with an aggregate liqui-
dation preference amount of $644, and the Original
Debentures with a principal amount of $644, were
exchanged for a like amount of preferred securities
(together with the Original Preferred Securities, the
“Preferred Securities”) and 8 percent Junior
Subordinated Debentures due 2027 (together with
the Original Debentures, the “Debentures”) which
were registered under the Securities Act of 1933. The
Debentures represent all the assets of the trust. The
Debentures and related income statement effects are
eliminated in our consolidated financial statements.
The Preferred Securities accrue and pay cash distri-
butions semiannually at a rate of 8 percent per annum
of the stated liquidation amount of one thousand
dollars per Preferred Security. These distributions
are recorded in Minorities’ interests in earnings of sub-
sidiaries in the Consolidated Statements of Income. We
have guaranteed (the “Guarantee”), on a subordinated
basis, distributions and other payments due on the
Preferred Securities. The Guarantee and our
obligations under the Debentures and in the indenture
pursuant to which the Debentures were issued and our
obligations under the Amended and Restated
Declaration of Trust governing the trust, taken together,
provide a full and unconditional guarantee of amounts
due on the Preferred Securities.
The Preferred Securities are mandatorily
redeemable upon the maturity of the Debentures on
February 1, 2027, or earlier to the extent of any
redemption by us of any Debentures. The redemption
price in either such case will be one thousand dollars
per share plus accrued and unpaid distributions to the
date fixed for redemption. Total net proceeds were
$637, net of $13 in fees and expenses. The initial carry-
ing value is being accreted to liquidation value over the
remaining term. As of December 31, 2002 and 2001 the
initial carrying value had accreted to $640 and $639,
respectively.
Deferred Preferred Stock: In 1996, a subsidiary of ours
issued 2 million deferred preferred shares for Canadian
(Cdn.) $50 ($37 U.S.). These shares are mandatorily
redeemable on February 28, 2006 for Cdn. $90 (equiva-
lent to $57 U.S. at December 31, 2002). The difference
between the redemption amount and the proceeds
from the issue is being amortized on a straight-line
basis, through the redemption date, to Minorities’ inter-
ests in earnings of subsidiaries in the Consolidated
Statements of Income. As of December 31, 2002, $12
remained to be amortized. We have guaranteed the
redemption value.
Note 17 — Common Stock
We have 1.75 billion authorized shares of common
stock, $1 par value after shareholders approved an
increase of 0.7 billion shares on September 9, 2002.
At December 31, 2002 and 2001, 127 million and 113
million shares, respectively, were reserved for issuance
under our incentive compensation plans. In addition, at
December 31, 2002, 57 million common shares were
reserved for the conversion of convertible debt, 36 mil-
lion common shares were reserved for conversion of
ESOP-related Convertible Preferred Stock and 113 mil-
lion common shares were reserved for the conversion
of Convertible Trust Preferred Securities.
Stock Option and Long-term Incentive Plans: In
October 2002, we adopted the additional disclosure
provisions of SFAS No. 148. See Note 1 for further
discussion. We have a long-term incentive plan whereby
eligible employees may be granted non-qualified
stock options, shares of common stock (restricted or
unrestricted) and performance/incentive unit rights.
Beginning in 1998 and subject to vesting and other
requirements, performance/incentive unit rights are
typically paid in our common stock. The value of each
performance/incentive unit is based on the growth in
earnings per share during the year in which granted.
Performance/incentive units ratably vest in the three
years after the year awarded. Compensation expense
recorded for performance/incentive units at December
31, 2000 was $5. No amounts were recorded in 2002
and 2001 as the required 2000 performance/incentive
measures were not met. This plan was discontinued
in 2001.
We granted 1.6 million, 1.9 million and 0.4 million
shares of restricted stock to key employees for the
years ended December 31, 2002, 2001 and 2000,
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