Xerox 2005 Annual Report Download - page 95

Xerox Corporation
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Note 18 – Common Stock
Wehave 1.75 billion authorized shares of common stock, $1 par
value. At December 31, 2005, 125 million shares were reserved
for issuance under our incentive compensation plans, 90 million
shares were reserved for the conversion of the Series C Mandatory
Convertible Preferred Stock, 48 million shares were reserved
for debt to equity exchanges, and 2 million shares were reserved
for the conversion of convertible debt.
Stock-Based Compensation: We have a long-term incentive
plan whereby eligible employees may be granted restricted stock
units (“RSUs”), performance shares (“PSs”) and non-qualified
stock options.
Restricted Stock Units: Prior to 2005, the RSUs were generally subject to a three-year ratable vesting period from the date of grant
and entitled the holder to one shareof common stock. In 2005, the terms of newly-issued RSUs were changed such that the entire
award vests three years from the date of grant. Compensation expense is based upon the grant date market price and is recorded over
the vesting period. A summary of the activity for RSUs as of December 31, 2005, 2004 and 2003, and changes during the years then
ended, is presented below (RSUs in thousands):
2005 2004 2003
Weighted Weighted Weighted
Average Average Average
Grant Date Grant Date Grant Date
Nonvested Restricted Stock Units Shares Fair Value Shares Fair Value Shares Fair Value
Outstanding at January 1 2,804 $13.86 2,180 $10.46 2,352 $14.08
Granted 3,750 16.89 2,539 13.70 1,657 7.90
Vested (977) 15.01 (1,905) 9.72 (1,809) 12.60
Cancelled (86) 16.21 (10) 19.14 (20) 30.36
Outstanding at December 31 5,491 15.69 2,804 13.86 2,180 10.46
In January 2005, we implemented changes in our stock-based
compensation programs designed to help us continue to attract
and retain employees and to better align employee interests with
those of our shareholders. With these changes, in lieu of stock
options we began granting PSs and expanded the use of RSUs.
Each of these awards is subject to settlement with newly issued
shares of our common stock. At December 31, 2005 and 2004,
38.9 million and 33.9 million shares, respectively, were available
for grant of options or awards.
Total compensation related to these programs was $40, $22 and
$15 for the years ended December 31, 2005, 2004 and 2003,
respectively. The related income tax benefit recognized was $16,
$8 and $7 for 2005, 2004 and 2003, respectively. A description
of each of our stock-based compensation programs follows:
At December 31, 2005, the aggregate intrinsic value of
RSUs outstanding was $79. The total intrinsic value of RSUs
vested during 2005, 2004 and 2003 was $13, $26 and $15,
respectively. The actual tax benefit realized for the tax deductions
for vested RSUs totaled $4, $9 and $5 for the years ended
December 31, 2005, 2004 and 2003, respectively.
At December 31, 2005, there was $39 of total unrecognized
compensation cost related to nonvested RSUs, which is expected
to be recognized ratably over a remaining weighted-average
contractual term of two years.
Performance Shares: We grant officers and selected executives
PSs whose vesting is contingent upon meeting pre-determined
Diluted Earnings per Share (EPS) and Cash Flow from Operations
targets. These shares entitle the holder to one share of common
stock, payable after a three-year period and the attainment of the
stated goals. If the cumulative three-year actual results for EPS
and Cash Flow from Operations exceed the stated targets, then
the plan participants have the potential to earn additional shares
of common stock. This overachievement can not exceed 50% for
officers and 25% for non-officers of the original grant.
Xerox Annual Report 2005