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):
January 7, 2002
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)
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Item 5. Other Events.
Pursuant to Rule 135c of the Securities Act of 1933, as amended, Registrant
hereby files its press release dated January 7, 2002, which is attached
hereto as Exhibit 99.4.
Item 7. Financial Statements and Exhibits.
(d) Exhibits.
99.4 Registrant's press release dated January 7, 2002.
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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 the Registrant serves, 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.
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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 from, 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 allow only limited 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 framework agreements (i) for GE Capital's Vendor
Financial Services to become the primary source of equipment financing
for Xerox customers in the United States, (ii) for the Canadian division
of GE Capital's Vendor Financial Services to become the primary source
of equipment financing for Xerox customers in Canada and (iii) for GE
Capital 's European Equipment Finance to become the primary equipment
financing provider for Xerox customers in France and Germany. 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 also are in various
stages of negotiations with third party vendors to offer financing to our
customers in all of the other major countries in Europe in which we do
business. There is no assurance if or when we will be able to successfully
complete these negotiations. In the near-term, 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 investigation and review of the Company's accounting
practices by the Securities and Exchange Commission discussed in the
Company's Current Report on Form 8-K dated January 7, 2002 and Note 12 to
the Company's unaudited consolidated financial statements included in the
Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 2001, as amended, and Note 2 to the Company's consolidated financial
statements as of and for the year ended December 31, 2000 included in the
Company's Annual Report on Form 10-K/A that describes the restatement of
the Company's consolidated financial statements for the three years ended
December 31, 2000. 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
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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, all of which could materially adversely
affect the Registrant's business. Among other things, Registrant's
productivity in the market for office equipment will be significantly
affected 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 of 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
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"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 (the "Revolver")
and extend its maturity beyond its current stated maturity of October
2002. If the Registrant is not able to successfully complete the
turnaround program, generate cash, and refinance and extend the
maturity of the Revolver or other obligations on a timely or
satisfactory basis, then 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 Revolver in
order to refinance a portion of our outstanding indebtedness thereunder
and extend its maturity beyond its current stated maturity of October
2002. This agreement requires us to maintain a minimum consolidated
tangible net worth ("CTNW"). At September 30, 2001, on a pro forma
basis after giving effect to the completion of the offering in November
2001 of $1,035 million aggregate liquidation amount of 7 1/2%
convertible trust preferred securities by our subsidiary, 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, adverse currency
translation adjustments and adverse litigation outcomes or settlements
would erode our CTNW. Failure to successfully refinance and extend the
maturity of the Revolver or a breach of the CTNW covenant could have a
serious adverse impact on our liquidity. See also "Customer Financing
Activities" above relating to our limited access to capital markets
due to our current credit ratings and an SEC investigation.
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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
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By: MARTIN S. WAGNER
Assistant Secretary
Dated: January 7, 2002
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