Xerox 2015 Annual Report Download - page 138

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,
2015, we serviced a FFEL portfolio of approximately 1.9 million loans with an outstanding principal balance of
approximately $28.7 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, 2015, other current liabilities include reserves which we believe to be adequate. At December 31,
2015, other current liabilities include reserves of approximately $4 for losses on defaulted loans purchased. In
addition to potential purchase obligations arising from servicing errors, various laws and regulations applicable to
student loan borrowers could give rise to fines, penalties and other liabilities associated with loan servicing errors.
Note 19 - Preferred Stock
Series A Convertible Preferred Stock
We have 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.
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 20 – Shareholders’ Equity
Preferred Stock
As of December 31, 2015, we had one class of preferred stock outstanding. See Note 19 - 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, 2015, 102
million shares were reserved for issuance under our incentive compensation plans, 48 million shares were reserved
for debt to equity exchanges and 27 million shares were reserved for conversion of the Series A convertible
preferred stock.
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.
The following provides cumulative information relating to our share repurchase programs from their inception in
October 2005 through December 31, 2015 (shares in thousands):
121