SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
October 2, 2001
XEROX CORPORATION
(Exact name of registrant as specified in its charter)
New York 1-4471 16-0468020
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) No.)
800 Long Ridge Road
P. O. Box 1600
Stamford, Connecticut 06904-1600
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code:
(203) 968-3000
-----------------------------------------------------------------------
Item 5. Other Events
Taking another major step forward in its turnaround plan to reduce costs,
improve productivity and increase competitiveness, Registrant today
announced a manufacturing agreement with Flextronics, a $12 billion
global electronics manufacturing services (EMS) company. The agreement
includes payment to Registrant of approximately $220 million and
assumption of certain liabilities for the sale of inventory, property
and equipment and a five-year contract for Flextronics to manufacture
certain Xerox office equipment and components, at a modest premium over
book value.
Registrant will sell to Flextronics office manufacturing operations
including manufacturing assets and inventory in Toronto; Resende, Brazil;
Aguascalientes, Mexico; and Penang, Malaysia. The approximately 3,650
current Xerox employees in these operations are expected to transfer to
Flextronics.
"Our agreement with Flextronics will redefine our office
manufacturing strategy through significantly improved asset utilization,
greater supply chain flexibility and cost savings as well as generating
cash from the asset sales," said Anne M. Mulcahy, Registrant's President
and Chief Executive Officer.
Registrant also said that it will stop production by the end of the
second quarter 2002 at its printed circuit board factory in El Segundo,
Calif., and its customer replaceable unit plant in Utica, N.Y. The
operation in El Segundo currently employs 425; Utica's employment
is 265. When these plants close, Flextronics will build the work into
its global network of manufacturing plants.
In addition, Registrant will begin consultations with European
works councils regarding the sale of its office manufacturing operations
in Venray, The Netherlands, and the transfer to Flextronics of some
production work currently performed at Registrant's site in Mitcheldean,
England.
As a result of these actions, Registrant expects to incur cash
restructuring charges that will approximately equal the premium over
book value from the asset sales.
Registrant and Flextronics expect that the first in a series of
closings on the asset sales will occur in the fourth quarter, beginning
a one-year transition period for Flextronics to assume manufacturing of
Xerox-designed office products and related components. Flextronics
will also begin the manufacturing of Registrant's electronic parts and
subsystems during the first half of 2002. Registrant will continue to
strengthen its manufacturing competencies in high-end production
printing and publishing equipment, toner and imaging supplies through
its remaining global manufacturing plants.
In total, the agreement with Flextronics represents in excess of $1
billion in annual manufacturing costs, approximately 50 percent of
Registrant's overall manufacturing operations.
"This agreement exemplifies the type of business that we have built
Flextronics to handle and is further evidence that the trend towards
virtual manufacturing continues," said Michael E. Marks, Chairman and
Chief Executive Officer of Flextronics. "This is also an opportunity
to expand our customer base and product portfolio through the acquisition
of these sites in addition to gaining valuable knowledge through the
Xerox people."
"Our partnership with Flextronics ensures that all Xerox office
products and components will continue to be produced under the high
quality standards that customers rely on from Xerox," said Ursula Burns,
President, Xerox Worldwide Business Services. "At the same time, Xerox
will benefit from Flextronics' commitment to significant annual
productivity improvements, maximizing its large-scale purchasing and
technological efficiencies."
Today's announcement with Flextronics is the latest in a series of Xerox
turnaround-related actions that are restoring Registrant's financial
strength and positioning Registrant for a return of profitability.
For example, Registrant announced last month a framework agreement with
GE Capital's Vendor Financial Services to become the primary equipment-
financing provider for Registrant's U.S. customers. The two companies
also agreed to the principal terms of a financing agreement under which
Registrant will receive from GE Capital approximately $1 billion secured
by Registrant's lease receivables in the United States.
Registrant's agreement with Flextronics is expected to close in stages
subject to the completion of global regulatory requirements. Registrant
will receive cash proceeds from the agreement in phases as the companies
close on the individual worldwide asset sales.
--------------------------------------------------------------
Forward-Looking Statements
From time to time Xerox Corporation (Registrant or the Company) and
its representatives may provide information, whether orally or in
writing, including certain statements in this Current Report on Form 8-K,
which are deemed to be "forward-looking" within the meaning of the Private
Securities Litigation Reform Act of 1995 ("Litigation Reform Act"). These
forward-looking statements and other information relating to the Company
are based on the beliefs of management as well as assumptions made by
and information currently available to management.
The words "anticipate", "believe", "estimate", "expect", "intend", "will",
and similar expressions, as they relate to the Company or the Company's
management, are intended to identify forward-looking statements. Such
statements reflect the current views of Registrant with respect to
future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated or expected. Registrant does not intend to update
these forward-looking statements.
In accordance with the provisions of the Litigation Reform Act we are
making investors aware that such "forward-looking" statements, because
they relate to future events, are by their very nature subject to many
important factors which could cause actual results to differ materially
from those contained in the "forward-looking" statements. Such factors
include but are not limited to the following:
Competition - Registrant operates in an environment of significant
competition, driven by rapid technological advances and the demands of
customers to become more efficient. There are a number of companies
worldwide with significant financial resources which compete with
Registrant to provide document processing products and services in each
of the markets served by Registrant, some of whom operate on a global
basis. The Registrant's success in its future performance is largely
dependent upon its ability to compete successfully in its currently-
served markets and to expand into additional market segments.
Transition to Digital - presently black and white light-lens copiers
represent approximately 25% of Registrant's revenues. This segment of the
market is mature with anticipated declining industry revenues as the
market transitions to digital technology. Some of Registrant's new
digital products replace or compete with Registrant's current
light-lens equipment. Changes in the mix of products from light-lens
to digital, and the pace of that change as well as competitive
developments could cause actual results to vary from those
expected.
Expansion of Color - color printing and copying represents an important
and growing segment of the market. Printing from computers has both
facilitated and increased the demand for color. A significant part of
Registrant's strategy and ultimate success in this changing market is
its ability to develop and market machines that produce color copies
quickly and at reduced cost. Registrant's continuing success in this
strategy depends on its ability to make the investments and commit the
necessary resources in this highly competitive market.
Pricing - Registrant's ability to succeed is dependent upon its ability
to obtain adequate pricing for its products and services which provide a
reasonable return to shareholders. Depending on competitive market
factors, future prices Registrant can obtain for its products and services
may vary from historical levels. In addition, pricing actions to offset
currency devaluations may not prove sufficient to offset further
devaluations or may not hold in the face of customer resistance and/or
competition.
Customer Financing Activities - On average, 75 - 80 percent of
Registrant's equipment sales are financed through Registrant. To fund
these arrangements, Registrant must access the credit markets and the
long-term viability and profitability of its customer financing
activities is dependent on its ability to borrow and its cost of
borrowing in these markets. This ability and cost, in turn, is
dependent on Registrant's credit ratings. Currently Registrant's credit
ratings are such as to effectively preclude its ready access to capital
markets and Registrant is currently funding its customer financing
activity from available sources of liquidity, including cash on hand.
There is no assurance that Registrant will be able to continue to fund
its customer financing activity at present levels. Registrant is
actively seeking third parties to provide financing to its customers.
In the near-term Registrant's ability to continue to offer customer
financing and be successful in the placement of its equipment with
customers is largely dependent upon obtaining such third party
financing.
Productivity - Registrant's ability to sustain and improve its profit
margins is largely dependent on its ability to maintain an efficient,
cost-effective operation. Productivity improvements through process
reengineering, design efficiency and supplier cost improvements are
required to offset labor cost inflation and potential materials cost
changes and competitive price pressures.
International Operations - Registrant derives approximately half its
revenue from operations outside of the United States. In addition,
Registrant manufactures or acquires many of its products and/or their
components outside the United States. Registrant's future revenue, cost
and profit results could be affected by a number of factors, including
changes in foreign currency exchange rates, changes in economic
conditions from country to country, changes in a country's political
conditions, trade protection measures, licensing requirements and
local tax issues. Our ability to enter into new foreign exchange
contracts to manage foreign exchange risk is currently severely
limited, and we anticipate increased volatility in our results of
operations due to changes in foreign exchange rates.
New Products/Research and Development - the process of developing new
high technology products and solutions is inherently complex and
uncertain. It requires accurate anticipation of customers' changing
needs and emerging technological trends. Registrant must then make
long-term investments and commit significant resources before knowing
whether these investments will eventually result in products that
achieve customer acceptance and generate the revenues required to
provide anticipated returns from these investments.
Revenue Growth - Registrant's ability to attain a consistent trend
of revenue growth over the intermediate to longer term is largely
dependent upon expansion of its equipment sales worldwide and usage
growth (i.e., an increase in the number of images produced by
customers). The ability to achieve equipment sales growth is subject
to the successful implementation of our initiatives to provide
industry-oriented global solutions for major customers and expansion
of our distribution channels in the face of global competition and
pricing pressures. The ability to grow usage may be adversely impacted
by the movement towards distributed printing and electronic substitutes.
Our inability to attain a consistent trend of revenue growth could
materially affect the trend of our actual results.
Turnaround Program - In October 2000, Registrant announced a turnaround
program which includes a wide-ranging plan to generate cash, return to
profitability and pay down debt. The success of the turnaround program
is dependent upon successful and timely sales of assets, restructuring
the cost base, placement of greater operational focus on the core business
and the transfer of the financing of customer equipment purchases to third
parties. Cost base restructuring is dependent upon effective and timely
elimination of employees, closing and consolidation of facilities,
outsourcing of certain manufacturing and logistics operations, reductions
in operational expenses and the successful implementation of process and
systems changes.
Registrant's liquidity is dependent on the timely implementation and
execution of the various turnaround program initiatives as well as its
ability to generate positive cash flow from operations and various
financing strategies including securitizations. Should Registrant not be
able to successfully complete the turnaround program, including positive
cash generation on a timely or satisfactory basis, Registrant will need
to obtain additional sources of funds through other operating
improvements, financing from third parties, or a combination thereof.
_________________________________________________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly authorized this report to be signed on its behalf by the
undersigned duly authorized.
XEROX CORPORATION
/s/ MARTIN S. WAGNER
----------------------------
By: MARTIN S. WAGNER
Assistant Secretary
Date: October 2, 2001