Xerox 2012 Annual Report Download - page 107

105Xerox 2012 Annual Report
Other Contingencies
We have issued or provided the following guarantees as of December
31, 2012:
• $454 for letters of credit issued to (i) guarantee our performance
under certain services contracts; (ii) support certain insurance
programs and (iii) support our obligations related to the Brazil tax
and labor contingencies.
• $736 for outstanding surety bonds. Certain contracts, primarily those
involving public sector customers, require us to provide a surety bond
as a guarantee of our performance of contractual obligations.
In general, we would only be liable for the amount of these guarantees
in the event of default in our performance of our obligations under
each contract; the probability of which we believe is remote. We believe
that our capacity in the surety markets as well as under various credit
arrangements (including our Credit Facility) is sufficient to allow us to
respond to future requests for proposals that require such credit support.
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,
2012, we serviced a FFEL portfolio of approximately 3.7 million loans
with an outstanding principal balance of approximately $53.0 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, 2012, other current liabilities
include reserves which we believe to be adequate. At December 31,
2012, other current liabilities include reserves of approximately $3.6 for
losses on defaulted loans purchased.
Note 18 – Preferred Stock
Series A Convertible Preferred Stock
In 2010, in connection with our acquisition of ACS, we issued 300,000
shares of Series A convertible perpetual preferred stock with an
aggregate liquidation preference of $300 and an initial fair value of
$349. The convertible preferred stock pays quarterly cash dividends
at a rate of 8% per year ($24 per year). 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), subject to customary anti-dilution
adjustments.
On or after February 5, 2015, if the closing price of our common stock
exceeds 130% of the then applicable conversion price (currently
$11.125 per share of common stock) for 20 out of 30 trading days,
we have the right to cause 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, 2012, 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, $1.00
par value per share. At December 31, 2012, 155 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 2 million shares were reserved for
the conversion of convertible debt.
Treasury Stock
We account for the repurchased common stock under the cost method
and include such treasury stock as a component of our common
shareholder’s equity. Retirement of treasury stock is recorded as a
reduction of Common stock and Additional paid-in capital at the time
such retirement is approved by our Board of Directors.