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):
April 24, 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)
Item 5. Other Events.
Registrant reported today on first-quarter performance that reflects
continued improvements in its operations.
FIRST-QUARTER PERFORMANCE
Registrant cannot provide at this time the full detail on its
first-quarter results primarily due to the application of a new bundled
lease accounting methodology that will be used to restate the years
1997-2000, adjust 2001 results and report final first-quarter 2002
results. This change in methodology is part of Registrant's previously
announced settlement agreement with the Securities and Exchange
Commission. However, Registrant is reporting today certain other
metrics that will not be impacted by these changes and that represent
Registrant's continued progress in strengthening its financial position
and core operations.
"During a quarter when Xerox was faced with tough issues and a continuing
weakened economy, we remained focused on building back value by improving
the core business and investing in future growth. Our strong performance
reflects the determination of Xerox people worldwide to restore Xerox to
good health," said Anne M. Mulcahy, Registrant's Chairman and Chief
Executive Officer. "I am encouraged by our first-quarter progress and
believe that we have clearly set the stage for a return to full-year
operational profitability."
Registrant had about $4.7 billion in worldwide cash at the end of March
following the repayment of $550 million of first-quarter maturing debt.
Registrant's cash balance in the first quarter increased by approximately
$700 million from last quarter. Cash generated from operations due to
working capital and other improvements was about $320 million, prior to
a $350 million tax payment resulting from the gain on last year's sale of
half of Registrant's interest in Fuji Xerox. Debt net of cash was $12.3
billion, a 17-percent reduction from the first quarter of 2001.
"Our relentless drive to fortify Xerox's financial position accelerated
in the first quarter as we closed on key finance-receivable securitizations
and made substantial progress in our negotiations to refinance a portion
of the company's revolver and to extend its maturity," added Mulcahy.
In related news, Registrant announced today that Xerox Capital Services,
its joint venture with GE Capital Vendor Financial Services, is expected
to close and become operational on May 1. XCS will manage Registrant's
customer administration and leasing activities in the U.S., including
various financing programs, credit approval, order processing, billing
and collections.
Registrant and GE Capital have also agreed to extend their U.S. finance-
receivable monetization arrangement. This agreement will provide Registrant
with additional funding, expected to be approximately $1 billion this year
secured by portions of Registrant's lease receivables in the U.S., while
the two companies finalize the agreement for GE Capital to become the
primary provider of equipment financing for Xerox customers in the U.S.
Registrant's intense focus on managing inventory resulted in a $490 million
or 28 percent decrease from first-quarter 2001, including an approximately
$60 million reduction from last quarter.
Registrant also continued to reduce its cost base in the first quarter
by taking actions that will result in additional annualized savings in
excess of $100 million. Worldwide employment declined 4,300 in the first
quarter to 74,600.
Research and development spending of $230 million in Registrant's core
business areas was essentially flat from first-quarter 2001.
In North America and Europe, Registrant delivered year-over-year
improvement in key segments of its core business. DocuTech equipment
placements grew 4 percent in the quarter. Office color printing installs
grew 6 percent driven by the success of Registrant's Phaser 860 and
7700. The weakened economy continued to delay capital spending that,
along with competition, resulted in a 22 percent decline in
production color equipment placements.
Activity declines in Registrant's developing markets will continue for
the near term as Registrant restructures the business to capture
profitable growth opportunities versus sales that weaken the bottom
line. However, for the first quarter, this strategy along with cost
reductions led to continued improvements in Registrant's developing
markets operations.
Commenting on future activity in Registrant's core production, office
and services business, Mulcahy cited Xerox's initiatives to strengthen
its competitive position through five new product platform launches
this year supported by aggressive marketing and expanded sales coverage.
"These investments are designed to achieve one objective: drive future,
sustainable, profitable growth," she said.
Registrant began reservation order taking two weeks ago on one of the
first of its new product platforms, the DocuColor iGen3. Registrant has
since received 100 reservation orders for this breakthrough digital
color production press, which has list prices starting at $510,000 and
is scheduled to begin shipping later this year. Registrant also recently
marked the 5,000th installation of its DocuColor 2000 Series of digital
color presses, the most successful product of its kind with one-and-a-half
times more placements than all comparable competitors combined.
RESTATEMENT
Under the terms of a settlement agreement with the Securities and
Exchange Commission, the restatement of 1997-2000 financial statements
as well as the adjustment to 2001 results will primarily reflect changes
in the timing and allocation of lease revenue, which will be reallocated
among equipment, service, supplies and finance revenue streams as
appropriate by applying a methodology different than the one Registrant
had used during those years. The resulting timing and allocation
adjustments cannot be estimated until the restatement process has been
completed. In any event, there will be no impact on the cash that has
been received or is contractually due to be received from these leases.
Furthermore, the monetary value of the leases does not change. The
restatement will also include adjustments that could be in excess of
$300 million due to the establishment and release of certain reserves
prior to 2001 and the timing of recognition of interest income on tax
refunds.
As previously announced, the Securities and Exchange Commission has
granted to Registrant as part of its settlement agreement with Registrant
an extension for the filing of its 2001 10-K and first-quarter 2002 10-Q
until June 30, 2002.
Further detail on Registrant's first-quarter performance appears below,
including summary financial information that is unaudited, subject to the
restatement and based on Registrant's previous accounting methodology for
bundled leases, which the SEC believes does not comply with GAAP.
PERFORMANCE REVIEW
Introduction
On April 11, 2002, Registrant (Xerox or the Company or we) announced that
we had concluded our settlement with the Securities and Commission
(SEC) on the previously disclosed matters that have been under
investigation since June 2000. As a result, the Company has agreed to
restate its financial statements for the years 1997 through 2000 as well
as adjust the previously announced 2001 results. This is in addition to a
previous restatement included in our 2000 Form 10-K. The new restatement
will primarily reflect adjustments in the timing and allocation of lease
revenue, which will be reallocated among equipment, service, supplies and
finance revenue streams as appropriate by applying a methodology
different than the one the Company had used during those years. The
resulting timing and allocation adjustments cannot be estimated until the
restatement process has been completed. In any event, there will be no
impact on the cash that has been received or is contractually due to be
received from these leases. Furthermore, the monetary value of the leases
does not change. The restatement will also include adjustments that could
be in excess of $300 million due to the establishment and release of
certain reserves prior to 2001 and the timing of recognition of interest
income on tax refunds. To allow for the additional time required to
prepare the restatement and to make these adjustments, the SEC issued an
Order granting an extension until June 30, 2002 for the filing of the
Xerox Corporation and Xerox Credit Corporation 2001 Forms 10-K and first
quarter 2002 Forms 10-Q. The Order provides that a filing made on or
before June 30, 2002 will be deemed to have been filed on the prescribed
due date. For further information regarding the Consent Order see the
"SEC Settlement" section that follows.
These preliminary results are unaudited, are presented using the
Company's historical methodology for allocating lease revenue from its
bundled arrangements, which the SEC believes is not in accordance with
Generally Accepted Accounting Principles (GAAP), and do not reflect the
restatement or the effects thereof for 1997 through 2000 or adjustments
to previously reported 2001 results. The Company is currently in the
process of implementing a new methodology for allocating lease revenue,
which will be used in preparing the restatement, making the adjustments
to 2001 and reallocating lease revenues generated in the first quarter
of 2002 and thereafter. The impact of the new methodology is currently
not determinable. Accordingly, the financial information presented here
is subject to adjustment upon the completion of such process and should
not be relied upon as reflecting the Company's financial results.
Moreover, while the presentation of the preliminary first quarter
results according to the historical methodology would appear to provide
comparability to the previously announced 2001 first quarter results,
the year-over-year comparison may not be reliable because of the
possibility that the restatement and 2001 adjustments may impact those
periods differently. For these reasons, we have limited our discussion
of financial information. We have provided trend information in key
areas, although even trends may be subject to change. Our detailed
financial results will be reported in our 2001 Form 10-K filing and
first quarter 2002 Form 10-Q filing following completion of the
restatement process.
As noted above, it is the SEC's view that the methodology historically
applied by the Company to allocate lease revenue from its bundled
arrangements is not in accordance with GAAP. The contracts typically
include equipment, service, supplies and financing components for which
the customer pays a negotiated price on a monthly basis as well as a
variable service component for page volumes in excess of stated
minimums. Xerox is in the process of changing its revenue allocation
methodology to estimate "normal selling prices" (fair value) of
equipment using an approach based on verifiable objective evidence of
value, including prices achieved in its cash sales and other market
based information. The full implementation of this methodology
requires application at detailed levels of the business and is
inextricably linked to the restatement process and to the adjustment
of previously reported 2001 results.
Summary
A summary of our performance for the first quarter of 2002 follows:
-- Our worldwide cash balance increased by approximately $0.7 billion
to $4.7 billion at March 31, 2002 compared to $4.0 billion at
December 31, 2001 and increased by $1.9 billion from $2.8 billion at
March 31, 2001. The increases from December 31, 2001 primarily reflect
the following:
-- The receipt of $746 million from the January 2002 Senior Note
Offering
-- The receipt of $510 million, net of escrow and fees, from GE
Capital loans secured by certain of our finance receivables in
the U.S. and Canada
-- Debt payments of approximately $550 million for maturing debt
-- Cash generated by operations of about $320 million, prior to
a tax payment of approximately $350 million related to the gain
on the 2001 Fuji Xerox sale and included:
-- Reduced receivables
-- Modest improvements in inventory levels
-- Modest increases in payables and other accruals
These positive items were partially offset by restructuring
payments of approximately $100 million.
-- As of March 31, 2002, we had approximately $9.4 billion and
$2.9 billion of debt obligations maturing in 2002 and 2003, as
summarized below (in billions):
2002 2003
First Quarter $ - $0.3
Second Quarter 1.3 1.1
Third Quarter 0.3 0.2
Fourth Quarter 7.8 1.3
________________________
Full Year $9.4 $2.9
Debt obligations due throughout the remainder of 2002 total
approximately $9.4 billion and include the $7 billion Revolving
Credit Agreement (Revolver), which matures in October. The
principal terms and conditions for refinancing a portion of the
Revolver and extending its maturity beyond October 2002 have been
distributed to the 57 lenders in the Revolver. Following approval
from these lenders as well as the negotiation and execution of the
definitive agreements, the refinancing is expected to be finalized no
later than June 30, 2002.
-- Worldwide employment declined by 4,300 to 74,600 in the 2002 first
quarter as a result of 2,700 employees leaving the Company, largely under
our restructuring programs, and the transfer of 1,600 employees to
Flextronics.
-- In the first quarter 2002 we took additional restructuring actions
related to our Turnaround Program which are expected to further reduce
annualized costs in excess of $100 million. As part of these cost-
cutting measures, we continue to record additional charges for
initiatives under the Turnaround Program. As a result of these actions
and changes in estimates related to previously established restructuring
reserves, in the first quarter 2002 we provided an incremental
$148 million related to initiatives under the Turnaround Program,
March 2000 and SOHO restructuring plans.
As discussed above, the financial information included in the following
discussion will change upon completion of the restatement:
-- Post currency revenue of $3.7 billion declined 11 percent in the
first quarter 2002 compared to $4.2 billion in the first quarter 2001.
The key messages are as follows:
-- Over one third of the decline was due to the exit from our
Small Office / Home Office (SOHO) business, reductions in our
Developing Markets Operations (DMO) and unfavorable currency.
-- Stabilization of our DocuTech family, with increased equipment
installs, was more than offset by declines in production printing
and production light lens copiers.
-- Production color declined as we continued to experience a
challenging competitive environment, including pricing pressures.
Further, the economy remained weak, which particularly impacted
demand in the graphic arts market.
-- Growth in Document Centre multifunction devices, including the
recent introduction of the Document Centre 490, was more than
offset by substantial declines in office light lens copiers
reflecting the trends in recent years.
-- The Phaser line of networked laser and solid ink printers drove
good growth in office color.
-- Gross margin was 39.0 percent, an improvement of 5.4 percentage points
in the first quarter 2002 compared to 33.6 percent in the first quarter
2001. Approximately half of the increase was due to the exit from SOHO
and improvements in DMO. Improved productivity and pricing discipline
combined with our continued focus on profitable transactions drove
gross margin improvements in most businesses.
-- Selling, administrative and general (SAG) expenses of $1.1 billion
improved approximately 6 percent in the 2002 first quarter compared to
the 2001 first quarter reflecting continued benefits from our Turnaround
Program, partially offset by increased spending related to our Olympic
sponsorship and advertising campaign.
-- Research and development (R&D) expense of $230 million was $16 million
lower in the 2002 first quarter compared to the 2001 first quarter
primarily reflecting our exit from SOHO.
-- Other expenses, net were $64 million in the first quarter 2002 versus
$90 million in the first quarter 2001. The more significant items
included in other expenses, net are as follows:
-- Significantly lower non-financing interest expense, reflecting
lower debt levels and reduced cost of borrowing, was partially
offset by SFAS 133 losses on the mark to market of our remaining
interest rate swaps.
-- Exchange losses of $26 million primarily reflecting the devaluation
of the Argentine Peso. This loss compares to exchange gains of
$63 million last year primarily related to gains on Yen
denominated debt.
-- Prior year includes approximately $16 million of goodwill
amortization. Amortization of goodwill was discontinued in 2002
under SFAS 142.
-- A gain of $19 million on the sale of stock resulting from the
Prudential Insurance Company demutualization.
-- The accrual of a $10 million civil penalty associated with the SEC
settlement.
-- The effective tax rate for the first quarter 2002 was 25.4 percent,
before restructuring. The estimated annual effective tax rate for 2002,
before restructuring, is expected to be 55 percent reflecting losses in
certain jurisdictions where we are no longer providing tax benefits.
The first quarter tax rate reflects differences between calculating the
effective tax rate on an annual basis versus on an interim basis.
Due to the fact that we are no longer providing tax benefits on losses
in certain jurisdictions, we have excluded such losses in determining
the quarterly tax provision. Accordingly, the mix of these losses on
an interim basis will alter the quarterly effective tax rate from the
estimated annual effective tax rate, as reflected above. In addition,
approximately $16 million of previously unrecorded tax benefits
associated with certain tax credit carryforwards were recognized as a
discrete item in the first quarter based on our realization assessments.
-- Minorities interest increased by $18 million to $25 million in the
first quarter 2002 primarily due to the quarterly distribution on the
Convertible Trust Preferred Securities issued in November 2001.
-- The first quarter 2002 net loss was $64 million or 9 cents per share.
-- Excluding net after tax restructuring charges of $105 million and
net after tax losses from unhedged foreign currency exposures of
$12 million, the first quarter 2002 net income, as adjusted, would
have been $53 million or earnings of 7 cents per share.
-- The 2001 first quarter net income was $202 million or $0.25 cents
per share. Excluding the following net after-tax items: Fuji Xerox sale
gain of $300 million, restructuring charges of $62 million, unhedged
foreign currency gains of $47 million, goodwill amortization of
$15 million and a $15 million extraordinary gain and cumulative change
in accounting principle, the 2001 first quarter net loss, as
adjusted, would have been $83 million or a loss of 11 cents per
share.
Recent Events
Adoption of SFAS 142
In the 2002 first quarter, we adopted SFAS 142. As a result, we
reclassified approximately $60 million of previously identified
intangible assets to goodwill. We will no longer record approximately
$60 million of annual amortization expense relating to our existing
goodwill, as adjusted, for the reclassifications previously mentioned.
Additionally, approximately $5 million of annual amortization
expense of goodwill related to equity method investments will no
longer be recorded.
SEC Settlement
On April 11, 2002 we concluded our settlement with the SEC on the
previously disclosed matters that have been under investigation since
June 2000. As a result, the Commission filed a complaint and a consent
order in federal district court for injunctive relief and a civil
penalty of $10 million. Xerox neither admits nor denies the allegations
of the complaint.
Under the terms of the settlement, we will restate our financial
statements for the years 1997 through 2000 as well as adjust previously
announced 2001 results. The restatement will primarily reflect adjustments
in the timing and allocation of lease revenue, which will be reallocated
among equipment, service, supplies and finance revenue streams as
appropriate by applying a methodology different than the one the Company
had used during those years. The resulting timing and allocation
adjustments cannot be estimated until the restatement process has been
completed. In any event, there will be no impact on the cash that has
been received or is contractually due to be received from these leases.
Furthermore, the monetary value of the leases does not change. The
restatement will also include adjustments that could be in excess of
$300 million due to the establishment and release of certain reserves
prior to 2001 and the timing of recognition of interest income on tax
refunds.
As part of the settlement, and to allow for the additional time
required to prepare the restatement and to make these adjustments, the
SEC issued an Order permitting us an extension until June 30, 2002 for
the filing of the Xerox Corporation and Xerox Credit Corporation 2001
Forms 10-K and first quarter 2002 Forms 10-Q. The Order provides that
a filing made on or before June 30, 2002 will be deemed to have been
filed on the prescribed due date.
We have also agreed that a special committee of our Board of Directors
will retain an independent consultant to review our material accounting
controls and policies. The Board will share the outcome of this review
with the SEC.
Vendor Financing Progress
Substantial progress in transitioning equipment financing to third party
vendors has been made in 2002. Our 2002 progress includes:
-- In April 2002, we signed an agreement with GE Capital Vendor Financial
Services (GE Capital) for the establishment of Xerox Capital Services
(XCS), a joint venture between Xerox and GE Capital, which is expected to
close and become operational on May 1, 2002. XCS will be a consolidated
entity and will provide Xerox's customer administration and leasing
activities in the U.S., including various financing programs, credit
approval, order processing, billing and collections.
-- In April 2002, we signed an agreement with GE Capital to extend the
U.S. finance receivable monetization arrangement, which will provide Xerox
with additional funding while the two companies finalize their arrangement
for GE Capital to become the primary provider of equipment financing for
Xerox customers in the U.S. The additional funding is expected to be
approximately $1 billion this year, secured by portions of Xerox's
current and future lease receivables in the U.S.
-- In first quarter 2002 we received $510 million, net of escrow and
fees, of financing from GE Capital, secured by portions of Xerox's lease
receivables in the U.S. and Canada.
-- In February 2002, we activated the previously announced joint venture
with De Lage Landen (DLL) to manage equipment financing, billing and
collections for the financing of Xerox equipment in the Netherlands.
DLL owns 51 percent of the joint venture and provides the funding to
support all new customer leases. Xerox owns the remaining 49 percent.
-- In March 2002, Banco Itau, S.A agreed to become the primary provider
of equipment financing for Xerox customers in Brazil. They began
providing the equipment financing for new activations in April 2002.
-- In March 2002, CIT Group affiliates in Mexico agreed to become the
primary provider of equipment financing for Xerox customers in Mexico.
They began providing the equipment financing for new activations in
April 2002.
-- On April 2, 2002, we sold our equipment financing operations in
Italy for $227 million, including the assumption of $20 million of
third party debt. In addition to purchasing our existing lease
portfolio in Italy, our financing partner will also provide ongoing,
exclusive equipment financing for new activations.
Other
In January 2002, we completed additional asset sales to transfer
Xerox's office product manufacturing operations to Flextronics. The
companies completed the sale of Xerox's plants in Venray, The Netherlands
and Resende, Brazil for approximately $29 million plus the assumption of
certain liabilities and subject to certain closing adjustments.
Approximately 1,600 Xerox employees in these operations transferred to
Flextronics. We have begun to transfer work to Flextronics from our
printed circuit board factories in El Segundo, California and
Mitcheldean, England and our customer replaceable unit plant in
Utica, New York. We plan to complete this by the end of the second
quarter 2002.
___________________________________________________________________________
Forward-Looking Statements
From time to time Xerox Corporation (the Registrant or the Company or we)
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 us, are intended to identify
forward-looking statements. Such statements reflect our current views 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. We do 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 - We operate 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 us to provide document processing
products and services in each of the markets we serve, some of whom operate
on a global basis. Our success in future performance is largely dependent
upon our ability to compete successfully in the markets we currently serve
and to expand into additional market segments.
Transition to Digital - Presently black and white light-lens copiers
represent approximately 20% of our revenues. This segment of the market is
mature with anticipated declining industry revenues as the market transitions
to digital technology. Some of our new digital products replace or compete
with our 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 our strategy and
ultimate success in this changing market is our ability to develop and
market machines that produce color prints and copies quickly and at reduced
cost. Our continuing success in this strategy depends on our ability to
make the investments and commit the necessary resources in this highly
competitive market and the pace of color adoption by our prospective
customers.
Pricing - Our success is dependent upon our ability to obtain adequate
pricing for our products and services which provide a reasonable return to
our shareholders. Depending on competitive market factors, future prices
we can obtain for our products and services may vary from historical
levels. In addition, pricing actions to offset the effect of 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, we have historically financed
approximately 75-80 percent of our equipment sales. To fund these
arrangements, we have historically had to access the credit markets and
use cash generated from operations. The long-term viability and
profitability of our customer financing activities is dependent on our
ability to borrow and the cost of borrowing in these markets. This ability
and cost, in turn, is dependent on our credit ratings. Currently our credit
ratings are such as to effectively preclude our ready access to registered
capital markets and we are currently funding our customer financing
activity from cash generated from operations as well as from cash on hand,
unregistered capital markets offerings and securitizations. There is no
assurance that we will be able to continue to fund our customer financing
activity at present levels. We continue to discuss implementation of
third-party vendor financing programs and possible sales of portions of
our existing finance receivables portfolios, and we continue to actively
pursue alternative forms of financing including securitizations and
secured borrowings. These initiatives will significantly reduce our debt
and finance receivable levels going forward. Our ability to continue to
offer customer financing and be successful in the placement of equipment
with customers is largely dependent upon obtaining third party financing.
Productivity - Our ability to sustain and improve profit margins is largely
dependent on our ability to maintain an efficient, cost-effective
operation. Productivity improvements through process re-engineering,
design efficiency and supplier cost improvements are required to offset
labor cost inflation, potential materials cost changes and competitive price
pressures.
International Operations - We derive approximately 40 percent of our
revenue from operations outside the United States. In addition, we
manufacture or acquire many of our products and/or their components outside
the United States. Our future revenue, cost and results from operations
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. We 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 Trends - Our ability to return to and maintain a consistent trend
of revenue growth over the intermediate to longer term is largely dependent
upon expansion of our worldwide equipment sales as well as revenues from the
services and supplies occurring after the initial equipment install (post
sale revenue), particularly in the key growth markets of color and
multifunction. Revenue growth will be further enhanced through our
consulting services in the areas of content, document, and knowledge
management. The ability to achieve equipment sales growth is subject to
the successful implementation of our initiatives to provide advanced
systems, industry-oriented global solutions and services for major
customers, improved direct sales productivity and expansion of our
indirect distribution channels in the face of global competition and
pricing pressures. The ability to grow usage may continue to be
adversely impacted by the movement towards distributed printing and
electronic substitutes. Our inability to return to and maintain a
consistent trend of revenue growth could materially affect the trend
of our operating results.
Liquidity - The adequacy of our continuing liquidity depends on our
ability to successfully generate positive cash flow from an appropriate
combination of operating improvements, financing from third parties, and
additional asset sales including sales or securitizations of our
receivables portfolios. With $4.7 billion of cash on hand worldwide at
March 31, 2002, we believe our liquidity is presently sufficient to meet
current and anticipated needs going forward, including all scheduled debt
maturities, subject to timely implementation and execution of all of the
various initiatives and other matters mentioned below. These initiatives
include our refinancing of the $7 billion of loans outstanding under our
Revolving Credit Agreement ("Revolver") that mature in October 2002.
We are currently in active negotiations with our bank group to refinance
a portion of the Revolver and to extend its maturity beyond 2002.
Management believes that significant progress has been made in such
discussions. The principal terms and conditions for refinancing a
portion of the Revolver, including the extension of its maturity beyond
October 2002,have been circulated to the 57 banks in the Revolver.
Commitments to the refinancing are being sought from the 57 banks in
the Revolver. Following the approval from these lenders as well as the
negotiation of the definitive agreements, the refinancing is expected
to be completed no later than the end of June 2002. Although we are
optimistic of a successful conclusion, there is no assurance that the
Revolver refinancing will be consummated on terms acceptable to us. In
addition to Revolver matters, we have undertaken initiatives to increase
our cash position and cash flows from operations, including, among others,
cost reductions, asset monetizations and focusing on more profitable
revenue. However, the results of such initiatives may not enable us to
fully satisfy the Revolver at maturity. In the event that we are
unsuccessful in renegotiating the Revolver with satisfactory terms and
conditions by October 22,2002, the bank group could declare a payment
default and take steps to recover the $7 billion, including the
commencement of legal proceedings against us. In such event we would
be required to consider the full range of strategic measures available
to companies in similar circumstances. These circumstances would raise
substantial doubt about our ability to continue as a going concern.
_____________________________________________________________________________
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: April 24, 2002