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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):
January 17, 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.
Registrant confirmed today that it has raised $746 million through an
unregistered offering in the U.S. and Europe of 9.75 percent Senior Notes
due in 2009. The sale exceeds initial projections of $500 million.
The company received today the net proceeds from the sale, which includes
US$559 million and Euro209 million.
With this funding and following the repayment of $1.2 billion in debt
that matured in the fourth quarter, Registrant's cash position has increased
to approximately $4.6 billion.
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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.
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 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 for office equipment will be significantly effected by the
successful conclusion, implementation and operation of this manufacturing
agreement.
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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 "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
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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 17, 2002
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