Xerox 2003 Annual Report Download - page 83

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India. In recent years we have become aware of a
number of issues at our Indian subsidiary that
occurred over a period of several years much of which
occurred before we obtained majority ownership of
these operations in mid 1999. These issues include
misappropriations of funds and payments to other
companies, that may have been inaccurately recorded
on the subsidiary’s books, and certain improper pay-
ments in connection with sales to government cus-
tomers. These transactions were not material to the
Company’s financial statements. We have reported
these transactions to the Indian authorities, the U.S.
Department of Justice and to the SEC.
South Africa. Certain transactions of our unconsolidated
South African affiliate that appear to have been
improperly recorded as part of an effort to sell sup-
plies outside of its authorized territory have been
investigated and a report of the results has been
received by the Board of Directors of the South African
affiliate. Disciplinary actions have been taken, and the
adjustments to our financial statements were not
material. Subsequent to these activities, in the second
quarter of 2003, we sold our interest in the South
African affiliate.
Nigeria. Following an investigation we have deter-
mined that certain inter-company and other balances
in the local books and records of our majority-owned
affiliate in Nigeria could not be substantiated. The
Company’s records did not reflect these amounts and
the local books have been adjusted to be consistent
with them. This adjustment has had no effect on our
financial statements. This matter has been reported to
the SEC and the Department of Justice. We are in the
process of liquidating this company in connection with
the December 2002 sale of our interest in the Nigerian
business to our local partner.
Eurasian Subsidiary. We have recently become aware
of a number of transactions in a Eurasian subsidiary
that appear to have been improperly recorded in late
2002 and early 2003. Appropriate disciplinary actions
have been taken and a charge of approximately
$5 related to the periods prior to July 1, 2003 was
made in our financial statements for the third quarter
of 2003. This matter has been reported to the SEC.
Note 16 – Preferred Stock
As of December 31, 2003, we have two classes of pre-
ferred stock outstanding as well as one class of pre-
ferred stock purchase rights. In total, we are authorized
to issue approximately 22 million shares of cumulative
preferred stock, $1.00 par value.
Series B Convertible Preferred Stock: As more fully
discussed in Note 12, in 1989 we sold 10 million
shares of our Series B Convertible Preferred Stock
(“ESOP Shares”) for $785 in connection with our
establishment of our ESOP. As of December 31, 2003,
all shares have been distributed to employees. As
employees with vested ESOP Shares leave the compa-
ny, we redeem those shares. We have the option to
settle such redemptions with either shares of common
stock or cash, but have historically settled in common
stock. Outstanding preferred stock related to our ESOP
at December 31, 2003 and 2002 were as follows
(shares in thousands):
2003 2002
Shares Amount Shares Amount
Convertible
Preferred Stock 6,380 $499 7,023 $550(1)
(1) This amount is presented on the face of the Consolidated Balance Sheet as
$508, which was net of deferred ESOP benefits of $42.
Series C Mandatory Convertible Preferred Stock: In
June 2003, we issued 9.2 million shares of 6.25 per-
cent Series C Mandatory Convertible Preferred Stock
with a stated liquidation value of $100 per share
(“Series C Mandatory Convertible Preferred Stock”) in
connection with the Recapitalization (refer to Note 1)
for net proceeds of $889. The proceeds from these
securities were used to repay a portion of our indebt-
edness. Annual dividends of $6.25 per share are
cumulative and payable quarterly in cash, shares of
our common stock or a combination thereof.
On July 1, 2006, each share of Series C Mandatory
Convertible Preferred Stock will automatically convert
into between 8.1301 and 9.7561 shares of our com-
mon stock, depending on the then 20-day average
market price of our common stock. At any time prior
to July 1, 2006, holders may elect to convert each
share of Series C Mandatory Convertible Preferred
Stock into 8.1301 shares of our common stock. If at
any time prior to July 1, 2006, the closing price per
share of our common stock exceeds $18.45 for at least
20 trading days within a period of 30 consecutive trad-
ing days, we may elect, subject to certain limitations,
to cause the conversion of all, but not less than all, the
shares of Series C Mandatory Convertible Preferred
Stock then outstanding for shares of our common
stock at a conversion rate of 8.1301 shares of our
common stock for each share of Series C Mandatory
Convertible Preferred Stock.
Preferred Stock Purchase Rights: We have a share-
holder rights plan designed to deter coercive or unfair
takeover tactics and to prevent a person or persons
from gaining control of us without offering a fair price
to all shareholders. Under the terms of the plan, one-
half of one preferred stock purchase right (“Right”)
accompanies each share of outstanding common
stock. Each full Right entitles the holder to purchase