Xerox 2010 Annual Report Download - page 101

Notes to the Consolidated
Financial Statements
Dollars in millions, except per-share data and unless otherwise indicated.
99Xerox 2010 Annual Report
over the 7-trading day period ended on September 14, 2009 and
the number used for calculating the conversion price in the ACS
merger agreement), subject to customary anti-dilution adjustments.
On or after the fifth anniversary of the issue date, we have the right
to cause, under certain circumstances, any or all of the convertible
preferred stock to be converted into shares of common stock at the
then applicable conversion rate. The convertible preferred stock is also
convertible, at the option of the holder, upon a change in control, at
the applicable conversion rate plus an additional number of shares
determined by reference to the price paid for our common stock upon
such change in control. In addition, upon the occurrence of certain
fundamental change events, including a change in control or the
delisting of Xerox’s common stock, the holder of convertible preferred
stock has the right to require us to redeem any or all of the convertible
preferred stock in cash at a redemption price per share equal to the
liquidation preference and any accrued and unpaid dividends to, but
not including the redemption date. The convertible preferred stock is
classified as temporary equity (i.e., apart from permanent equity) as
a result of the contingent redemption feature.
Note 19 – Shareholders’ Equity
Preferred Stock
As of December 31, 2010 we had one class of preferred stock
outstanding. See Note 18 – Preferred Stock for further information.
We are authorized to issue approximately 22 million shares of
cumulative preferred stock, $1.00 par value per share.
Common Stock
We have 1.75 billion authorized shares of common stock, $1 par value
per share. At December 31, 2010, 167 million shares were reserved for
issuance under our incentive compensation plans, 48 million shares were
reserved for debt to equity exchanges, 27 million shares were reserved
for conversion of the Series A convertible preferred stock and two million
shares were reserved for the conversion of convertible debt.
In connection with the acquisition of ACS in February 2010 (see Note 3 –
Acquisitions for further information), we issued 489,802 thousand shares
of common stock to holders of ACS Class A and Class B common stock.
Treasury Stock
Our Board of Directors has authorized programs for repurchase of the
Company’s common stock. During the year ended December 31, 2010,
we did not purchase any common stock.
The following provides cumulative information relating to our share
repurchase programs from their inception in October 2005 through
December 31, 2010 (shares in thousands):
Authorized share repurchase $ 4,500
Share repurchases $ 2,941
Share repurchase fees $ 4
Number of shares repurchased 194,093
We have service arrangements where we service third-party student
loans in the Federal Family Education Loan program (“FFEL”) on behalf
of various financial institutions. We service these loans for investors
under outsourcing arrangements and do not acquire any servicing
rights that are transferable by us to a third party. At December 31,
2010, we serviced a FFEL portfolio of approximately 3.6 million loans
with an outstanding principal balance of approximately $51.4 billion.
Some servicing agreements contain provisions that, under certain
circumstances, require us to purchase the loans from the investor if the
loan guaranty has been permanently terminated as a result of a loan
default caused by our servicing error. If defaults caused by us are cured
during an initial period, any obligation we may have to purchase these
loans expires. Loans that we purchase may be subsequently cured,
the guaranty reinstated and the loans repackaged for sale to third
parties. We evaluate our exposure under our purchase obligations on
defaulted loans and establish a reserve for potential losses, or default
liability reserve, through a charge to the provision for loss on defaulted
loans purchased. The reserve is evaluated periodically and adjusted
based upon management’s analysis of the historical performance of
the defaulted loans. As of December 31, 2010, other current liabilities
include reserves of less than $1 for losses on defaulted loans purchased.
In connection with the acquisition of ACS, the Company agreed
to provide certain tax and prior employment agreement-related
indemnities to former officers and directors of ACS. Management does
not anticipate any potential claims under these indemnities would have
a material adverse effect on the Company’s financial statements taken
as a whole and accordingly no value has been assigned for financial
reporting purposes.
Note 18 – Preferred Stock
Series A Convertible Preferred Stock
In connection with the acquisition of ACS in February 2010 (see Note
3 – Acquisitions for additional information), we issued 300,000 shares
of Series A convertible perpetual preferred stock with an aggregate
liquidation preference of $300 and a fair value of $349 as of the
acquisition date to the holder of ACS Class B common stock. The
convertible preferred stock pays quarterly cash dividends at a rate of
8% per year and has a liquidation preference of $1,000 per share.
Each share of convertible preferred stock is convertible at any time, at
the option of the holder, into 89.8876 shares of common stock for a
total of 26,966 thousand shares (reflecting an initial conversion price
of approximately $11.125 per share of common stock and is a 25%
premium over $8.90, the average closing price of Xerox common stock