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):
December 20, 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
Not Applicable
(Former name or former address, if changed since last report)
Item 5. Other Events.
Registrant and GE Capital today announced a framework agreement for GE
Capital's European Equipment Finance to become the primary equipment financing
provider for Xerox customers in France and Germany.
For Registrant, the implementation of this agreement will be another step
forward in its progress to strengthen its financial position by transitioning
equipment financing to third-party vendors. For GE Capital, the transactions
will provide growth through Registrant's extensive customer base in France and
Germany, Registrant's second and third largest European operations
respectively.
In addition, GE Capital intends to buy portions of Registrant's current lease
receivables in France and Germany for approximately $570 million.
The framework agreement for vendor financing and the sale of lease receivables
are subject to regulatory approval, negotiation of definitive agreements and
satisfaction of closing conditions, including completion of due diligence as
well as notifying and consulting with local works councils.
Today's announcements build on the global relationship between Registrant and
GE Capital. Earlier this year, the companies announced framework agreements for
GE Capital to become the primary equipment-financing provider for Registrant's
customers in the United States and Canada.
Last year, Registrant announced its plan to transition to third-party equipment
financing as part of its turnaround strategy. Over time, this is expected to
remove as much as $10 billion in equipment financing-related debt from
Registrant's balance sheet and reduce Registrant's future cash requirements.
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Forward-Looking Statements
From time to time Xerox Corporation (the 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 the 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. The 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 - the 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 the
Registrant to provide document processing products and services in each
of the markets served by the 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. If we are unable to
compete successfully it could adversely affect our results of operations
and financial condition.
Transition to Digital - presently black and white light-lens copiers
represent approximately 25% of the Registrant's revenues. This segment
of the market is mature with anticipated declining industry revenues as
the market transitions to digital technology. Some of the Registrant's
new digital products replace or compete with the 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
the Registrant's strategy and ultimate success in this changing market
is its ability to develop and market machines that produce color prints
and copies quickly and at reduced cost. The 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. If
we are unable to develop and market alternative offerings in digital and
color technologies, we may lose market share which could have a material
adverse effect on our operating results.
Pricing - the 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 the 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 the
Registrant's equipment sales are financed through the Registrant. To fund
these arrangements, the 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 the Registrant's
credit ratings. Currently the Registrant's credit ratings effectively
preclude its ready access to capital markets and the Registrant is
currently funding its customer financing activity from available sources
of liquidity including cash on hand. There is no assurance that the
Registrant will be able to continue to fund its customer financing
activity at present levels. The Registrant is actively seeking third
parties to provide financing to its customers and recently announced a
framework agreement for GE Capital's Vendor Financial Services to become
the primary equipment financing for Xerox customers in the United States
and a framework agreement for the Canadian division of GE Capital's Vendor
Financial Services to become the primary source of equipment financing for
Xerox customers in Canada. These framework agreements have not yet been
completed and remain subject to the negotiation of definitive agreements and
satisfaction of closing conditions, including completion of due diligence.
We are in various stages of negotiations with third party vendors to offer
financing to our customers in all of the major countries in Europe. There
is no assurance if or when we will be able to successfully complete these
negotiations. The 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.
In addition, the Company does not expect to be able to access the
capital markets in registered public offerings pending resolution of the
review of the Company's accounting practices by the Securities and
Exchange Commission referred to in Note 12 to the Consolidated
Financial Statements. The Company cannot predict when the Securities
and Exchange Commission will conclude either its investigation or its
review or the outcome or impact of either.
Manufacturing Outsourcing - In October 2001, the Registrant announced a
manufacturing agreement with Flextronics, a $12 billion global electronics
manufacturing services company. The agreement includes a five-year supply
contract for Flextronics to manufacture certain office equipment and
components and the payment of approximately $220 million to Registrant
for inventory, property and equipment at a modest premium over book value,
and the assumption of certain liabilities. The actual cash proceeds will
vary, based upon the actual net asset levels at the time of the closings.
As a result of these actions, Registrant expects to incur restructuring
charges in the fourth quarter of 2001. Approximately 50 percent of
Registrant's manufacturing capacity has been sold to Flextronics.
Registrant's ability to ensure continued product availability and
achieve improved asset utilization, supply chain flexibilities and cost
savings is dependent upon successfully completing the transition to
Flextronics. The Registrant's future success in the market for office
equipment will be significantly effected by the successful conclusion,
implementation and operation of this manufacturing agreement.
Productivity - the 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,
including manufacturing outsourcing discussed above, are required to
offset labor cost inflation and potential materials cost changes and
competitive price pressures. Registrant's productivity in the market
for office equipment will be significantly effected by the successful
conclusion, implementation and operation of the manufacturing agreement
with Flextronics described above.
International Operations - Following the events of September 11, 2001,
economic outlook in the United States and the other areas of the world
has further weakened. The Registrant derives approximately half its revenue
from operations outside of the United States. In addition, the Registrant
manufactures or acquires many of its products and/or their components
outside the United States. The Registrant's future revenue, cost and
profit results could be affected by a number of factors, including global
economic conditions, 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, therefore, 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. The 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 - the Registrant's ability to attain a consistent trend of revenue
over the intermediate to longer term is largely dependent upon stabilization
and subsequent 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, including our vendor financing programs,
to ensure the stability and increasing tenure of our direct sales force
while continuing to expand indirect sales 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, the 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 operations, reductions in operational
expenses and the successful implementation of process and systems changes.
See "Customer Financing Activities" and "Manufacturing Outsourcing" above
for a description of two of the Turnaround initiatives.
Liquidity - the 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,
possible asset sales, and various financing strategies including
securitizations and its ability to successfully refinance a portion of
its $7 billion Revolving Credit Agreement and extend its maturity beyond
October, 2002. Should the Registrant not be able to successfully complete
the turnaround program, generate cash and refinance and extend the
maturity of the Revolving Credit Agreement on a timely or satisfactory
basis, the Registrant will need to obtain additional sources of funds
through other operating improvements, financing from third parties, asset
sales, or a combination thereof. There can be no assurance that we can
obtain these additional sources of funds. We have initiated discussions
with the agent banks under our $7 billion revolving credit agreement in
order to refinance a portion and extend its maturity beyond October, 2002.
This agreement contains a consolidated tangible net worth ("CTNW")
covenant. At September 30, 2001, on a pro forma basis after giving
effect to the sale of our convertible junior subordinated debentures
in connection with the offering and sale of $1,035 million 7 1/2%
convertible trust preferred securities of Xerox Capital Trust II and
the application of the net proceeds thereof, our CTNW would have been
$1,185 million over the minimum amount required under the covenant.
Operating losses, restructuring costs and adverse currency translation
adjustments would erode the cushion. Failure to successfully refinance
and extend the maturity of the agreement or a breach of the CTNW covenant
could have a serious adverse impact on our liquidity.
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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: December 20, 2001