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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):
November 27, 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)
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Item 5. Other Events.
Registrant announced on November 27, 2001 that it has raised more than
$1 billion through its convertible trust preferred securities offering,
double the initial projections of $500 million. On November 27, 2001
Registrant received the net proceeds from the sale.
In related news, Registrant confirmed that it has received the previously
announced financing from GE Capital, including $835 million secured by
portions of Xerox's lease receivables in the U.S., and $450 million
secured by receivables in the U.K.
"The completion of these financing arrangements is further evidence of
Xerox's strengthened financial position and the building confidence in
Xerox's turnaround and return to profitability," said Barry D. Romeril,
Xerox vice chairman and chief financial officer.
With the funding received in the past week and following the repayment of
$1.1 billion in debt that matured this quarter, Registrant's current cash
position increased to $3.6 billion, including $230 million in defeasance
to guarantee three years of the dividend payments on the convertible trust
preferred securities.
At September 30, 2001, on a pro forma basis after giving effect to the
sale of the above securities offering and the application of the net
proceeds thereof, Registrant's consolidated tangible net worth (CTNW)
would have been $1,185 million over the minimum amount required under the
CTNW covenant in Registrant's $7 billion revolving credit agreement.
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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
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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
source of 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.
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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
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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 of 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
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By: MARTIN S. WAGNER
Assistant Secretary
Dated: November 28, 2001
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