SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended: December 31, 2001
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from: to
1-4471 (Commission File Number)
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XEROX CORPORATION
(Exact name of registrant as specified in its charter)
New York 16-0468020
(State of incorporation) (I.R.S. Employer Identification No.)
P.O. Box 1600, Stamford, Connecticut
(Address of principal executive offices)
06904
(Zip Code)
Registrant's telephone number, including area code: (203) 968-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of each Class Which Registered
------------------- ------------------------
Common Stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: (X) No: ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of May 31, 2002 was: $6,525,261,445
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date:
Class Outstanding at May 31, 2002
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Common Stock, $1 par value.......... 727,048,629 Shares
Documents Incorporated By Reference
Portions of the following documents are incorporated herein by reference:
Part of 10-K in
Document Which Incorporated
-------- -------------------
Xerox Corporation 2001 Annual Report to Shareholders I & II
2
Forward Looking Statements
From time to time we and our representatives may provide information, whether
orally or in writing, including certain statements in this Annual Report on Form
10-K, which are forward-looking. These forward-looking statements and other
information are based on our beliefs as well as assumptions made by us based on
information currently available.
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.
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 between 15%-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 technology that produces color prints and copies
quickly, easily 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 as well as 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 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 80 percent of our equipment sales. To fund these
arrangements, we have accessed the credit markets and used 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. 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 negotiate and implement third-party vendor financing programs and
possible monetizations of portions of our existing finance receivable
portfolios, and we continue to actively pursue alternative forms of
financing including securitizations and secured borrowings. These
initiatives are expected to significantly improve our liquidity going
forward. Our ability to continue to offer customer financing and be
successful in the placement of equipment with customers is largely
dependent upon successful implementation of our third party financing
initiatives.
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,
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design efficiency and supplier and manufacturing cost improvements are
required to offset labor cost inflation, potential materials cost
increases 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 given our below investment
grade credit ratings, 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 placements as well
as sales of services and supplies occurring after the initial equipment
placement (post sale revenue) in the key growth markets of color and
multifunction devices. Revenue growth will be further enhanced through
our consulting services in the areas of document content and knowledge
management. The ability to achieve growth in our equipment placements 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 our customers' usage of our
products 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 have a
material adverse affect on 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,
access to capital markets and additional asset sales including sales or
securitizations of our receivables portfolios. We believe our liquidity
is sufficient to meet current and anticipated needs, including all
scheduled debt maturities; however, our ability to maintain positive
liquidity is highly dependent on achieving our expected operating
results, including capturing the benefits from restructuring activities,
and completing several vendor financing and other initiatives that are
discussed below. There is no assurance that these initiatives will be
successful. Failure to successfully complete these initiatives could
have a material adverse effect on our liquidity and our operations, and
could require us to consider further measures, including deferring
planned capital expenditures, modifying current restructuring plans,
reducing discretionary spending and selling additional assets.
We have successfully completed the renegotiation of our $7 billion
Revolving Credit Agreement (the "Old Revolver"). Of the original $7
billion in loans outstanding under the Old Revolver, $2.8 billion has
been repaid and the remaining $4.2 billion has been refinanced under the
terms of a new Amended and Restated Credit Agreement (the "New Credit
Facility"), which is more fully discussed elsewhere in this Annual
Report on Form 10-K. The New Credit Facility requires certain principal
amortizations as well as prepayments in the case of certain events. A
full discussion of all of these terms and the final maturity dates of
the various loans is included in the Capital Resources and Liquidity
section of this Annual Report on Form 10K. The New Credit Facility
contains affirmative and negative covenants including limitations on
issuance of debt and preferred stock; certain fundamental changes;
investments and acquisitions; mergers; certain transactions with
affiliates; creation of liens; asset transfers; hedging transactions;
payment of dividends; inter-company loans and certain restricted
payments; and a requirement to transfer excess foreign cash, as defined,
and excess cash of Xerox Credit Corporation to Xerox Corporation in
certain circumstances. It also contains additional financial covenants,
including minimum EBITDA, maximum leverage (total adjusted debt divided
by EBIDTA, as defined) and, maximum capital expenditures limits.
Any failure to be in compliance with any material provision of the New
Credit Facility could have a material adverse effect on our liquidity
and operations.
4
PART I
Item 1. Business
Overview
Xerox Corporation (Xerox or the Company) is The Document Company and a leader in
the global document market, selling equipment and providing document solutions
including hardware, services and software that enhance our customers' work
processes and business results. References herein to "we," "us" or "our" refer
to Xerox and consolidated subsidiaries unless the context specifically states or
implies otherwise. Xerox and its affiliates operate in over 130 countries
worldwide. We distribute our products in the Western Hemisphere through
divisions and wholly-owned subsidiaries. In Europe, Africa, the Middle East,
India and parts of Asia, we distribute through Xerox Limited and related
companies (collectively Xerox Limited). Xerox had approximately 78,900 employees
at December 31, 2001.
Our activities encompass developing, manufacturing, marketing, servicing and
financing a complete range of document processing products, solutions and
services designed to make organizations around the world more productive. We
believe that the document is a tool for productivity, and that documents--both
electronic and paper--are at the heart of most business processes. Documents are
the means for storing, managing and sharing business knowledge. Document
technology is key to improving productivity through information sharing and
knowledge management and we believe no one knows the document--paper to
electronic and electronic to paper-- better than we do.
Fuji Xerox Co., Limited is an unconsolidated entity in which Xerox Limited
currently owns 25 percent and which Fuji Photo Film Co., Ltd. (FujiFilm) owns 75
percent. These ownership interests reflect the March 2001 sale of half our
original ownership interest in Fuji Xerox to FujiFilm for $1,283 million in
cash. Fuji Xerox develops, manufactures and distributes document processing
products in Japan, China, Hong Kong and other areas of the Pacific Rim,
Australia and New Zealand. Approximately 80 percent of these sales are in Japan,
13 percent in the rest of the region and approximately 7 percent are sales
directly to us. We retain significant rights as a minority shareholder. All
product and technology agreements between us continue, ensuring that the two
companies retain uninterrupted access to each other's portfolio of patents,
technology and products.
Core Strategy
Our goal is to develop document technologies, systems, solutions and services
that improve our customers' work processes and business results. The success of
our strategy rests on our ability to understand our customers' needs, provide
document management services and outsourcing capabilities and deliver
synergistic value propositions among our core businesses.
In our Production and Office businesses we provide advanced document systems
that seamlessly link into enterprise electronic workflow, enhancing business
performance. We created the production print-on-demand industry in 1990 with our
DocuTech Production Publisher. As our customers increasingly utilize color
documents, we continue to lead the transition to color which began with the
DocuColor 40 in 1996, expanded in 2000 with our DocuColor 2000 series of digital
color presses, and continues with initial customer engagement and the ongoing
development of the DocuColor iGen3, for which we have in excess of 100
reservation orders and expect to launch in the second half of 2002. In the
Office, we were the first to introduce digital copiers and networked
multi-function devices for the office with the 1997 launch of our Document
Centre family. With this product family, we have established a leadership
position in the connected multifunction market. We expect to launch the next
generation Document Centre family of products in June 2002 which is expected to
deliver improved functionality and quality at reduced cost. Our January 2000
acquisition of the Color Printing and Imaging Division of Tektronix, Inc.
(CPID), with its line of Phaser solid ink and laser color printers, has moved us
to a strong number two market share position in the fast-growing networked
office color printing market. This acquisition has also increased our reseller
and dealer distribution network and provided us with scalable solid ink
technology.
We further add value to our systems by developing specific solutions to improve
our customers' business processes. We work with our customers to build
tailor-made solutions that harness our technology to improve their critical
business processes. In the Production segment, these solutions include printing
books, pamphlets, parts catalogues and other mission-critical documents
"just-in-time." We customize document production to enable "one-to-one"
marketing by providing variable print solutions that enable the printing of
personalized documents in both color and black and white. In the Office, we
offer innovative services such as office document assessments (ODA), which
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help customers identify cost savings and workflow improvements through more
efficient document processes and improved equipment utilization. We have
recently extended document access for mobile workers through partnerships with
Research in Motion (RIM) and Electronics For Imaging (EFI) to deliver solutions
that combine Xerox mDoc 3.0 software with BlackBerry TM wireless e-mail and the
Printme solution. These solutions allow workers to send documents through mobile
devices directly to public or networked office printers, without drivers, cables
or complex setups.
In both our Production and Office businesses we offer services consisting of
consulting, implementation and ongoing management services that build on our
success in document outsourcing by applying advances in imaging technology,
document, content and knowledge management to improve enterprise work practices.
Examples of these offerings include the re-design of document intensive work
processes and the management of in-house document technology in our hosted
sites. In 2001, we opened our online "interactive digital repository" and
imaging facility, which is capable of converting and managing massive amounts of
business critical information and providing online access to data previously
available only in paper and various electronic formats.
Building on our core businesses, our strategy has three overlapping phases. The
first phase involves our Turnaround Program, which is intended to help ensure
liquidity and stabilize the business. The second phase is to return to
sustainable profitability and the third phase is to leverage growth
opportunities predominantly in our core businesses.
Turnaround
During 2000, the significant business challenges that we began to experience in
the second half of 1999 continued to adversely affect our financial performance.
To counter these challenges, we implemented actions beginning in mid-2000 to
stabilize our sales force and minimize further disruption to our operations. In
October 2000, we announced a Turnaround Program designed to help ensure adequate
liquidity, re-establish profitability and build a solid foundation for future
growth. The Turnaround Program encompassed four major components: (i) asset
sales of $2-$4 billion; (ii) accelerated cost reductions designed to reduce
costs by at least $1 billion annually; (iii) the transition of equipment
financing to third party vendors and (iv) a focus on our core business of
providing document processing systems, solutions and services to our customers.
By the end of 2001, we had made significant progress executing this program and
achieving these goals.
By year-end 2001, we had completed asset sales of $2.3 billion, comprised of the
March 2001 sale of half our ownership interest in Fuji Xerox Co., Ltd. (Fuji
Xerox) to Fuji Photo Film Co., Ltd. (FujiFilm) for $1,283 million, the December
2000 sale of our China Operations to Fuji Xerox for $550 million, the April 2001
sale of our Nordic leasing businesses to Resonia AB for approximately $370
million, and in the fourth quarter 2001 the first in a series of asset sales to
transfer our office product manufacturing operations to Flextronics for
approximately $118 million. We believe the asset sale component of our
Turnaround Program has been largely completed.
We also intensified cost reductions to improve our competitiveness. During 2001,
we implemented work force resizing and cost reduction actions that we believe
will result in approximately $1.1 billion in annualized savings. These savings
are expected to result from reducing layers of management, consolidating
operations where prudent, reducing administrative and general spending,
capturing service productivity savings from our digital products and tightly
managing discretionary spending. We are reducing costs in our Office segment by
moving to lower cost indirect sales and service channels and by outsourcing our
office products manufacturing. Our worldwide employment declined by
approximately 13,600 to 78,900 at December 31, 2001. In our ongoing efforts to
reduce our cost base, we will continue to implement restructuring actions and
incur substantial restructuring charges throughout 2002; although less than the
amounts recorded in 2001.
Our transition to third party financing will significantly improve our liquidity
while ensuring equipment financing is still provided to our customers. In 2001,
we entered into framework agreements with General Electric Capital, Corporation
(GE Capital) for them to manage our customer administrative functions and become
the primary equipment financing provider for Xerox customers in the U.S.,
Canada, France and Germany. On May 1, 2002, Xerox Capital Services, LLC (XCS),
our U.S. venture with GE Capital Vendor Financial Services, became operational.
XCS manages our customer administration and leasing activities in the U.S.,
including various financing programs, credit approval, order processing, billing
and collections. We are currently in the process of completing the negotiation
of definitive agreements with GE Capital for the implementation of the Canadian
joint venture which is expected in the second half of 2002. These agreements are
subject to the completion of due diligence on GE's part as well as the
fulfillment of various regulatory requirements.
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Ongoing funding for new leases by GE Capital and its affiliates in both the U.S.
and Canada is expected to be in place later this year upon development and
completion of systems and process modifications. In Europe, a number of
initiatives are under way and have been implemented. In Germany, we received a
$77 million loan in May 2002 secured by certain finance receivables, as we
continue to complete our vendor financing transition this year. In France we are
completing due diligence, fulfilling regulatory requirements, consulting with
local works councils and expect to complete the agreement with GE Capital in the
third quarter 2002. We have fully transitioned our leasing businesses in the
Nordic countries, the Netherlands and Italy. Our Nordic leasing business was
sold to Resonia AB in April 2001. In the first quarter 2002, we formed a joint
venture with De Lage Landen International BV (DLL) in which they provide funding
and manage equipment financing for our customers in the Netherlands. In May
2002, we sold our equipment financing operations in Italy for approximately $207
million in cash plus the assumption of $20 million of debt. We have made
significant progress in our Developing Markets Operations (DMO), beginning in
April 2002, with Banco Itau S.A. in Brazil and collectively with the Capita
Corporation de Mexico S.A. de C.V., Organizacion Auxiliar Del Credito and
Arrendadora Capita Corporation, S.A. de C.V. in Mexico becoming the primary
equipment financing providers in their respective countries. By the end of 2002,
we expect that approximately two-thirds of all new financed lease originations
will be funded by third parties, through a combination of structures including
direct financing, finance receivable securitizations and ongoing secured
borrowings.
In addition to the vendor financing agreements, in 2001 and through the first
half of 2002, we borrowed approximately $3.1 billion in the U.S., Canada and
U.K. from GE Capital through the securitization of certain existing lease
contracts. We and GE Capital are parties to a loan agreement dated November 2001
which provides for a series of secured loans in the U.S. up to an aggregate of
$2.6 billion. Through June 2002, approximately $1.9 billion of loans have been
funded under this GE Capital agreement including a $499 million loan which
closed on May 12.
In line with our strategy to focus on our core business, we announced the
disengagement from our worldwide SOHO business in June 2001. By the end of the
year, we had sold the remaining equipment inventory and in the fourth quarter
achieved profitability in this business through the sale of supplies to our
current base of SOHO customers. We expect this profitable supplies revenue
stream to decline over time as the equipment is eventually replaced.
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Return to Sustainable Profitability
In 2002, we expect to return to sustainable profitability, reflecting continued
cost based improvements and the initial benefits of new product platform
launches in the second half of the year. During 2002, we expect to further
improve our cost base by leveraging more cost-effective distribution channels
which include the expansion of our low cost, higher efficiency teleweb channel
and increased use of remote diagnostics to service equipment. As we enter 2003,
we expect to realize additional benefits both from our office products
manufacturing agreement with Flextronics and our U.S. venture with GE Capital.
In addition we expect improved R&D efficiencies from our relationship with Fuji
Xerox. We have product and technology agreements with Fuji Xerox which, ensures
that the two companies retain uninterrupted access to each other's portfolio of
patents, technology and products. DMO restructuring actions impacting
profitability are expected to take place in 2002 and as such, overall
profitability in the segment is not expected until 2003.
Leverage Future Growth Opportunities
We continue to be a leader in providing world-class document technology to our
customers. We are also taking significant steps to satisfy our customers'
increasing demand for more advanced systems and services with solutions such as
internet driven distributed digital printing and custom publishing, and on
demand printing and publishing. We believe our products are geared to match the
needs of the rapidly growing document related markets. The primary drivers of
this growth are increased competitiveness of our offerings in the core
businesses coupled with an aggressive leadership position in key high growth
market segments. Key among these growth segments are: 1) color in all areas from
networked printers and multifunction devices for the office to our
production color product line that we expect will increasingly transition pages
from traditional offset devices; 2) office multifunction devices where we are
the leader in connected devices which result in higher page volumes, and 3)
value added services which enable us to build on our existing customer
relationships in outsourcing to capture market growth opportunities. Our
technology and experience with documents and process management provide us with
a solid foundation to offer document, content and knowledge management services.
Business Segments
Our financial results by business segment for 2001, 2000 and 1999, presented in
Note 10 to the consolidated financial statements of the Company's 2001 Annual
Report to Shareholders, are hereby incorporated by reference.
Market Overview
The document industry is undergoing a fundamental transformation, with the
continued transition from analog and offset to digital technology, the
management of publishing and printing jobs over the Internet, the use of
variable data to create customized documents, an increasing reliance on
outsourcing, the transition to color and the increase in mobile workers
utilizing hand-held devices. Documents are increasingly created and stored in
digital electronic form while the Internet is increasing the amount of
information that can be accessed in the form of electronic documents. We believe
that all of these trends play to the strengths of our products, technology and
services, and that such trends represent opportunities for future growth.
We estimate the global document related markets that we serve, excluding Japan
and the Pacific Rim countries served by Fuji Xerox, were approximately $103
billion in 2000 and will grow to about $134 billion in 2004 reflecting a
compound annual growth rate of approximately 7 percent.
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Revenues for our major segments for the three years ended December 31, 2001,
after giving affect to the restatement discussed elsewhere in this Annual Report
on Form 10-K, were as follows:
Year ended December 31 ($ in millions) 2001 2000* 1999*
------- ------- -------
Production $ 5,899 $ 6,332 $ 6,933
Office 6,926 7,060 6,853
Developing Markets 2,027 2,619 2,450
SOHO 407 599 575
Other 1,749 2,141 2,184
------- ------- -------
Total $17,008 $18,751 $18,995
======= ======= =======
Memo: Color $2,762 $2,612 $1,619
====== ====== ======
* As Restated
Production Market
Through our direct sales and service organizations around the world, we provide
systems and services to Fortune 1,000, graphic arts, government, education and
public sector customers. Our products in this market include monochrome
production publishing (DocuTech family), production printing (DocuPrint family),
production light-lens devices at speeds over 90 pages per minute and color
publishing and printing devices at speeds over 30 pages per minute. Our products
are also focused on the graphic arts market.
We estimate that production market was approximately $36 billion in 2000 and is
expected to grow to about $41 billion in 2004, reflecting a compound annual
growth rate of 3 percent. Within this segment, we are the strong market leader
in the monochrome production market, which is growing at about one percent per
year. The total color market is expected to grow at a 9 percent compound annual
rate; digital color, which represents our offerings and where we are the market
leader, is expected to grow much faster at about 30 percent per year reflecting
the transition from offset to digital offerings. Our strategy is to drive the
"New Business of Printing" by introducing innovative production systems and
solutions to expand our leadership position and focus on the higher growth
digital color opportunities. The "New Business of Printing" is characterized by
fast turnaround times, precise quantities, personalization and customization and
is built on the solid foundation of the digital production print on demand
market, which we created in 1990 with the introduction of our first DocuTech
Production Publisher. We provide content creation and management, production and
fulfillment solutions and services to improve our customers' work processes and
business results. As examples, we believe utilizing our digital technology to
personalize marketing communications can improve response rates from 2 to 30
percent and printing on demand can eliminate inventory and warehousing costs. We
believe our new DocuColor iGen3, the next generation of color technology, which
will begin installations in the second half of 2002, will expand the digital
color print on demand market due to its speed, image quality, personalization
and cost advantages.
To capture the growth opportunities in the production market, we have identified
color and services as two corporate strategic growth platforms. During 2001 we
stabilized our share as the market leader in the monochrome production market,
even gaining share in the second half of the year in the high end production
segment with continued success from our advanced family of DocuTech systems and
solutions. We conceded some share in the low end "light" production segment
(91-120 pages per minute) as competitors introduced digital offerings. While we
maintained our leadership position in color, there was some market share erosion
in the second half 2001 following the introduction of a competitive product.
Black and White Production Publishing (DocuTech)
Since we launched the era of production publishing with the introduction of our
DocuTech Production Publishing family in 1990, we have installed more than
30,000 DocuTech systems worldwide.
Digital production publishing technology continues to replace traditional
short-run offset printing as customers seek
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improved productivity and cost savings, faster turnaround of document
preparation, and the ability to print and customize documents "on demand." We
offer the widest range of hardware and solutions available in the marketplace,
from dial-up lines through the Internet to state-of-the-art networks, and we are
committed to expanding these print on demand solutions as new technology and
applications are developed.
The DocuTech family of digital production publishers scans hard copy and
converts it into digital documents, or accepts digital documents directly from
networked personal computers or workstations. DocuTech prints high-resolution
(600 dots per inch) pages at speeds ranging from 65 to 180 impressions per
minute and is supported by a full line of accessory products and options. We are
the only manufacturer in the market who offers a complete family of production
publishing systems from 65 to 180 impressions per minute.
In 2001, we introduced a new streamlined version of DigiPath Production Software
to offer an easy, low-cost way for print providers to enter the market. DigiPath
is a major productivity tool, which allows a printer's customers to use the
Internet to streamline print job submission combined with industry leading scan
and document preparation technology for subsequent archiving, preparation,
proofing, and reprinting. In 2002, we launched the new common "DocuSP"
controller technology which, for the first time, provides a consistent way to
prepare and process print jobs in color and black-and-white from DocuTech to
DocuColor high-end systems.
Black and White Production Printing (DocuPrint)
We pioneered and continue to be a worldwide leader in computer laser printing,
which combines computer, laser, communications and xerographic technologies. We
market a broad line of robust printers with speeds from 75 pages per minute up
to the industry's fastest cut-sheet printer at 180 pages per minute, and
continuous-feed production printers at speeds up to 1,000 images per minute.
Many of these printers have simultaneous interfaces that can be connected to
multiple host computers as well as local area networks. Our goal is to integrate
office, production and data-center computer printing into a single, seamless,
user-friendly family of production class printers.
In 2001, we extended the functionality of our DocuPrint products with the EPS
family. EPS brings a common controller to both the production publishing and the
transaction printing worlds. This enables our customers to use the benchmark
workflows we have created for each of these markets on one device, significantly
reducing the costs for new installations as well as protecting previously
purchased Xerox investments.
Also in 2001, we expanded our continuous feed offerings with new continuous feed
high-end printing systems and additional solutions and services. The
introduction of the DocuPrint 350 CF, 500 CF, 700 CFD, and 1000 CFD products
will provide additional opportunities for us in the continuous feed printing
market and protect our transaction printing family of products. Breakthrough
technology in our highlight color printers including the DocuPrint 4850 and
DocuPrint 92C allows printing in an industry exclusive single pass of
black-and-white plus one customer-changeable color (as well as shades, tints,
textures and mixtures of each) at production speeds up to 90 pages per minute.
Production Color Printing
Digital color is one of the fastest growing segments of the Production market
with an expected estimated compound annual growth rate of about 30 percent. In
June 2000, we launched the DocuColor 2000 Series developed to provide
high-volume on-demand printing, personalized printing, printing and publishing
for e-commerce and Internet delivery. Both the DocuColor 2045, which prints at
45 pages per minute, and the DocuColor 2060, which prints at 60 pages per
minute, establish an industry standard by producing near-offset quality,
full-color prints at an unprecedented operating cost of less than 10 cents per
page, depending on monthly volumes. More than 5,000 DocuColor 2000 series units
have been installed since launch, which has exceeded our expectations, although
placements beginning in the second half of 2001 reflected the adverse impact of
the weaker economic environment and introduction of competitive devices.
In September 2001 at Print 01, a major industry trade show, we demonstrated the
DocuColor iGen3, an advanced next-generation digital printing press designed to
expand the digital color print on demand market. The DocuColor iGen3 consists of
modular components, which work together as a sophisticated print shop. Utilizing
patented imaging technology which produces photographic quality output
indistinguishable from offset, this breakthrough technology will produce over
100 pages per minute at an operating cost of about 5 cents per page. Customer
acceptance testing began at the end of 2001 and we began reservation orders in
April 2002. By the end of May we
10
had received in excess of 100 reservation orders for the DocuColor iGen3, which
has a base list price of over $500,000. We expect to install a modest number of
units beginning in the second half of 2002 with 300-400 installs expected in
2003.
Production Light-Lens Copying
Revenues from black and white light-lens production copiers (over 90 pages per
minute) continued to decline as expected, due to increasing price pressures and
as customers transitioned to new digital products.
Office Market
We estimate that the office market was approximately $53 billion in 2000 and is
expected to remain essentially flat through 2004. The Office market includes
global, national and mid-size commercial customers as well as government,
education and other public sector customers. Office systems and services
encompass monochrome devices at speeds up to 90 pages per minute, including our
family of Document Centre digital multi-function products, color laser, solid
ink and monochrome laser desktop printers, digital copiers, light-lens copiers
and facsimile products. Page volume in the office market is expected to decline
slightly as high growth in color pages (from a very small base) is offset by
modest black and white page volume declines. We are targeting the fast-growing
color segment of the office market driving the market to color printing and
copying by making color as easy, fast and affordable as black and white. In
addition, we are driving the migration from single function machines to
multi-function devices that copy, print, scan and fax by ensuring that
multi-function is more cost-effective, while still continuing to offer single
function devices as well.
Our strategy in the office is to be the primary choice for workgroups, providing
the best connected and stand-alone solutions and making color as easy to use as
black and white. We have established a leadership position in color and
connected multi-function markets, which are the highest growth segments in the
office market, with each growing at a compound rate of approximately 15 percent.
To extend document access for mobile workers, we have partnered with RIM and EFI
to deliver solutions that combine Xerox mDoc 3.0 software with BlackBerryTM
wireless e-mail and the Printme solution. These solutions include the ability to
personalize e-mail attachments such as forms and contracts and also allow users
to e-mail, fax or print these documents on the go. The broad portfolio of
service offerings also includes the Office Document Assessment (ODA), asset
management and support. An ODA is used to analyze a business' workflow and
document needs and then identify the most efficient, productive mix of office
equipment and software for that business, therefore helping to reduce the
customer's document related costs. To improve our cost structure, as part of our
Turnaround Program, we have outsourced office product manufacturing to
Flextronics and are moving more of our sales and service from direct to lower
cost indirect channels, thus improving efficiency and reducing costs. We
distribute our office products through a variety of direct sales and indirect
channels of distribution which include sales agents and concessionaires,
resellers, internet sales and telebusiness offerings.
Black and White Digital Multifunction Products
Our Document Centre family of modular black and white digital multi-function
products at speeds ranging from 20 to 90 pages per minute offer copy, print,
scan and fax capabilities in one device. This product family was first
introduced in 1997 and has been continually upgraded including two new models in
the Document Centre 400 series in 2001. We believe the network and fax options
have compelling economics versus the alternative of purchasing comparable
printers and faxes since the print engine, output mechanics and most of the
software required are part of the base digital copier. Independent laboratory
studies have indicated that our product line far exceeds the competition in
effective network print speed, regardless of the advertised speed. In addition,
all of our Document Centre products have IP (Internet Protocol) addresses, which
permit them to be accessed via the Internet from anywhere in the world. The
success of the Document Centre 480 (75 pages per minute) and 490 (85 pages per
minute) was evidenced by significant market share gains in the 70 to 90 pages
per minute segment in 2001. The Document Centre 490, launched in North America
in September 2001, also began to effectively counteract the impact of
competitive product entries in the light production market discussed above. The
Document Centre 490 was launched in Europe in February 2002. We expect to launch
the next generation Document Centre family of products in June 2002 which will
deliver improved functionality and quality at reduced cost.
The proportion of Document Centre devices installed with network connectivity
remained at over 50 percent during
11
2001. We believe that further enabling network connectivity and training our
customers to optimize the power of these products could ultimately lead to as
much as 25 percent incremental page growth on our equipment, which would likely
have beneficial impacts on our sales of services and supplies.
A second family of products, the WorkCentre Pro is aimed at lower volume cost
conscious customers. The line is anchored with the successful WorkCentre Pro 412
product introduced in September 2001.
Color Copying and Printing
The use of color originals in the office is increasing and pages are expected to
grow by about 20 percent through 2004. Color is expected to represent about 4
percent of total office pages and approximately 15 percent of office revenue by
2004.
Our strong number two market share position in the networked office-color
printer market reflects the January 2000 acquisition of CPID. This division
manufactures and markets Phaser workgroup color printers, that use either color
laser or solid ink printing technology, and a complete line of ink and related
supplies. In 2001, we introduced the Phaser 860 solid ink color printer and the
Phaser 2135 and 7700 laser color printers, all of which use single pass color
technology and are the fastest in their class. In May 2002 we introduced the
Phaser 6200 color laser and 8200 solid ink printers, which are designed to fuel
the migration to color in the office by offering cost and print quality
advantages that make it practical to replace black-and-white printers. The
Phaser products have continued to win awards including the Excellence in Imaging
Award at the 2002 Digital Focus Media event, which is among the industry's most
prestigious awards in the field of digital imaging. The CPID acquisition also
increased our reseller and dealer distribution network and provided us with
scalable solid ink technology, which is up to four times less expensive to
manufacture.
In 1999 we introduced the Document Color Centre Series 50, the first
color-enabled Document Centre that produces 12.5 full-color pages and 50
black-and-white pages per minute and includes a Xerox network controller built
into every machine. Sales of this product have been successful as the Document
Centre Color Series 50 combines the advantages of a relatively low equipment
price and the production of color pages at operating costs significantly lower
than other color copier/printers in this class. In addition, it is unlike other
color products in that the operating cost of producing black and white prints is
similar to that of monochrome digital products.
We expect to launch a new office color product platform in the second half of
2002.
Light-lens Copying
Light-lens copier revenues continue to decline reflecting customer transition to
new digital black-and-white products and increasing price pressures. We believe
that the trend over the past few years will continue and that light-lens product
revenues will represent a declining share of total revenues.
Black and White Laser Printers
Our DocuPrint family of monochrome network laser printers was originally
launched in 1997 and currently includes models at speeds ranging from 8 to 45
pages per minute. These laser printers complete our product line and are faster,
more advanced and less expensive than competitive models, offering "copier-like"
features such as multiple-set printing, stapling and collating. The CPID
acquisition accelerated our objective of increasing the number of resellers who
also market our black and white laser printers.
Developing Markets Organization (DMO)
DMO includes operations in Latin America, the Middle East, India, Eurasia,
Russia, and Africa. Over 120 countries are included in DMO, with Brazil
representing almost half the DMO revenue. The DMO operations are managed
separately as a segment due to the political and economic volatility and unique
nature of their markets. In 2002, we expect to continue to significantly
restructure our Latin American operations and expect to substantially reduce
losses. We expect DMO to return to profitability in 2003.
12
Small Office/Home Office SOHO Market
In line with our strategy to focus on our core business, we announced the
disengagement from our worldwide SOHO business in June 2001. By the end of the
year, we had sold the remaining equipment inventory and achieved profitability
in this business through the sale of supplies to our current base of SOHO
customers. We expect this profitable supplies revenue stream to decline over
time as the equipment is eventually replaced.
Other Products
We also sell cut-sheet paper to our customers for use in their document
processing products. The market for cut-sheet paper is highly competitive and
revenues are significantly affected by pricing. Our strategy is to charge a
premium over mill wholesale prices which is adequate to cover our costs and
value added as a distributor. In June 2000, we entered into an agreement to sell
our US and Canadian commodity paper operations, including their customer list,
for $40 million. We also entered into an exclusive license agreement for the
Xerox brand name. In accordance with the agreement, we are entitled to earn
commissions on any Xerox originated sales of commodity paper as an agent for
Georgia Pacific.
We also offer other document processing products, including devices designed to
reproduce large engineering and architectural drawings up to 3 feet by 4 feet in
size, which are developed and sold through Xerox Engineering Systems (XES).
Our consulting services revenue is included in the Other segment.
13
Competitive Advantages
Research and Development
Investment in research and development (R&D) is critical to drive future growth,
and we have directed our investments to the fast growing color, services and
solutions segments of the market. Our goal is to continue to create innovative
technologies that will expand current and future markets. Our research
scientists regularly meet with customers and have dialogues with our business
divisions to ensure they understand customer requirements and are focused on
products and solutions that can be commercialized.
In 2001, R&D expense was $997 million compared with $1,064 million in 2000 and
$1,020 million in 1999. 2001 R&D spending was focused primarily on those
programs related to the development of high-end business applications, as well
as those that may extend our color capabilities. The decline in spending from
2000 primarily reflects our June 2001 decision to exit the SOHO business.
DocuColor iGen3, an advanced next-generation digital printing press which was
marketed to customers beginning in late 2001 and produces photographic quality
indistinguishable from offset, is an example of the type of breakthrough
technologies developed by Xerox that we expect will drive our future growth.
Xerox R&D is strategically coordinated with Fuji Xerox, which invested $548
million in R&D in 2001 for a combined total for the two companies of $1,545
million. Xerox focuses its expenditures on the Production segment with Fuji
Xerox focusing on the Office segment. As we continue to optimize synergies in
R&D, we expect to realize further productivity benefits. During 2001, we were
awarded over 900 patents including digital color imaging, intelligent machine
control and document management software.
To drive future growth, we have maintained our R&D spending at 5-6 percent of
revenue. We continue to invest in technological development to maintain our
premier position in the rapidly changing document processing market with a
heightened focus on efficiency and time to market.
Marketing and Distribution
Our document processing products are principally sold directly to customers by
our worldwide sales force totaling approximately 11,000 employees, and through a
network of independent agents, dealers, value-added resellers and systems
integrators. We are expanding our use of cost-effective indirect distribution
channels for basic offerings, and utilizing our direct sales force for our
customers' more advanced technology, solutions and services requirements.
We market our Phaser line of color and monochrome laser-class and solid ink
printers through office information technology industry resellers, who access
our products through distributors such as Ingram Micro, Tech Data, CHS and
Computer 2000. These distributors supply our products to a broad range of
information technology and information systems-oriented resellers such as
dealers, direct marketers, VARs, systems integrators, government resellers,
corporate resellers, and e-commerce business-oriented resellers, such as CDW.
This group of resellers in turn, markets, sells, installs, and in some cases
helps support our products to end-user customers. We also sell directly to some
of these resellers, rather than through distributors. As a result of the
acquisition of CPID we have significantly increased the number of active
resellers and nearly doubled the channel activity on Xerox-branded network
printers. In addition, new initiatives are being implemented to add channel
capacity through direct-to-customer e-commerce and direct-to-customer selling
using our direct sales force in select large accounts.
We are increasing our use of partners to improve our market coverage. In 2001 we
announced an alliance with Imation to market our DocuColor 2000 series to
commercial printers. In 2001, we extended our information technology contract
with Electronic Data Systems Corp. (EDS) to develop a formal alliance program
designed to create and market integrated offerings combining our next-generation
digital products and services with EDS' corporate IT infrastructure services.
In 2001, spending on advertising was modest as we focused on stabilizing the
business. In 2002, we are investing heavily in marketing, led by a new
advertising campaign launched at the 2002 Winter Olympics. Our brand is a
valuable resource and continues to be valued in the top 10 percent of all brands
worldwide.
14
Service
As of year-end 2001, we had a worldwide service force of approximately 19,000
employees and a network of independent service agents. We are expanding our use
of cost-effective remote service technology for basic offerings, while
continuing to focus our own direct service force on production products and
serving customers in need of more advanced value added services. We believe that
our service force represents a significant competitive advantage in that the
service force is continually trained on our new products and their diagnostic
equipment is state-of-the-art. Twenty-four-hours-a-day, seven-days-a-week
service is available in major metropolitan areas around the world. As a result,
we are able to guarantee a consistent and superior level of service worldwide.
Customer Satisfaction
Our most important priority is customer satisfaction. Our research shows that
the cost of selling a replacement product to a satisfied customer is far less
than selling to a "new" customer. We regularly survey customers on their
satisfaction, measure the results, analyze the root causes of dissatisfaction,
and take steps to correct any problems. Our products, technology, services and
solutions are designed with one goal in mind, which is to make our customers'
businesses more productive.
International Operations
Our international operations represent approximately 40 percent of total
revenues in 2001. Our largest interest outside the United States is Xerox
Limited which operates predominately in Europe. Latin American operations are
conducted through subsidiaries or distributors in over 35 countries. Fuji Xerox
develops, manufactures and distributes document processing products in Japan and
other areas of the Pacific Rim, Australia, New Zealand and China.
Our financial results by geographical area for 2001, 2000 and 1999, which are
included in Note 10 of the Company's 2001 Annual Report to Shareholders are
hereby incorporated by reference.
Item 2. Properties
We own a total of ten principal manufacturing and engineering facilities and
lease two additional facilities. The domestic facilities are located in
California, New York, Oklahoma, and Oregon and the international facilities are
located in Brazil, Canada, UK, Ireland, the Netherlands, and India. We also have
four principal research facilities; two are owned facilities in New York and
Canada, and two are leased facilities in California and France.
In 2001 and the first half of 2002 as part of our outsourcing initiatives, we
sold and subleased to Flextronics certain of our manufacturing locations in
Mexico, Malaysia, Canada, Venray, the Netherlands and Brazil. Also, as we
implemented our Turnaround Program, several properties have become surplus and
appropriate reserves have been established. The majority of the surplus
properties are leases that we are obligated to maintain through required
contract periods. We have disposed or subleased certain of these properties and
are aggressively pursuing the successful disposition and subleasing of all
remaining surplus properties.
In addition, we have numerous facilities, which encompass general offices, sales
offices, service locations and distribution centers. The principal owned
facilities are located in the United States, France, Ireland, and Mexico. The
principal leased facilities are located in the United States, Brazil, Canada,
UK, Mexico, France, Germany and Italy.
Our Connecticut based corporate headquarters facility is leased; however, we own
the related land. We also lease a portion of a training facility, located in
Virginia, which we previously owned.
It is our opinion, that our properties have been well maintained, are in sound
operating condition and contain all the necessary equipment and facilities to
perform our functions.
15
Item 3. Legal Proceedings
The information set forth under Note 16 "Litigation and Regulatory Matters" of
the Company's 2001 Annual Report to Shareholders is hereby incorporated by
reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Market Information, Holders and Dividends
The information set forth under the following captions of the Company's 2001
Annual Report to Shareholders is hereby incorporated by reference:
Caption
Stock Listed and Traded
Xerox Common Stock Prices and Dividends
Five Years in Review - Common Shareholders of Record at Year-End
Recent Sales of Unregistered Securities
During the quarter ended December 31, 2001, Registrant issued the following
securities in transactions which were not registered under the Securities Act of
1933, as amended (the Act):
1. Xerox Common Stock
(a) Securities Sold: On October 1, 2001, Registrant issued 11,442
shares of Common Stock, par value $1 per share.
(b) No underwriters participated. The shares were issued to each of
the non-employee Directors of Registrant: A.A. Johnson, V.E.
Jordan, Jr., Y. Kobayashi, H. Kopper, R.S. Larsen, G.J.
Mitchell, N.J. Nicholas, Jr., J.E. Pepper, M.R. Seger and T.C.
Theobald.
(c) The shares were issued at a deemed purchase price of $7.75 per
share (aggregate price $88,625), based upon the market value on
the date of issuance, in payment of the quarterly Directors'
fees pursuant to Registrant's Restricted Stock Plan for
Directors.
(d) Exemption from registration under the Act was claimed based upon
Section 4(2) as a sale by an issuer not involving a public
offering.
2. 7 1/2 % Convertible Trust Preferred Securities
(a) Securities Sold: On November 27, 2001, Xerox Capital Trust II a
wholly-owned subsidiary of the Registrant, issued and sold
20,700,000 7 1/2 % Convertible Trust Preferred Securities
(liquidation amount $50 per trust preferred security). The trust
preferred securities are convertible into shares of Xerox Common
Stock, par value $1 per share.
16
(b) The trust preferred securities were sold to Deutsche Banc Alex.
Brown; Merrill Lynch & Co. and Salomon Smith Barney, as initial
purchasers.
(c) An aggregate of 20,700,000 trust preferred securities were
issued and sold at a price of $50 cash per trust preferred
security. The aggregate offering price was $1,035,000,000. The
aggregate fees and expenses paid were $31,050,000.
(d) Exemption from registration under the Act was claimed based upon
Rule 144A.
(e) Each trust preferred security is convertible into 5.4795 shares
of Xerox Common Stock, par value $1 per share, subject to
adjustment.
Item 6. Selected Financial Data
The following selected financial data for the five years ended December 31,
2001, as set forth and included under the caption "Five Years in Review," of the
Xerox Corporation 2001 Annual Report to Shareholders, is incorporated by
reference in this Form 10-K Annual Report.
Revenues
Income (loss) from continuing operations
Per-Share Data - Earnings (loss) from continuing operations
Total assets
Long-term debt
Preferred stock
Per Share Data - Dividends declared
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" of the Company's 2001
Annual Report to Shareholders is hereby incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information set forth under the caption "Risk Management," of the Xerox
Corporation 2001 Annual Report to Shareholders is hereby incorporated by
reference.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements, together with the reports thereon of
PricewaterhouseCoopers LLP, dated June 26, 2002, included in the Xerox
Corporation 2001 Annual Report to Shareholders, are incorporated by reference in
this Form 10-K Annual Report. With the exception of the aforementioned
information and the information incorporated in Items 5, 6, 7, 7A and 8, the
Xerox Corporation 2001 Annual Report to Shareholders is not to be deemed filed
as part of this Form 10-K Annual Report.
The quarterly financial data included under the caption "Quarterly Results of
Operations (Unaudited)" of the Xerox Corporation 2001 Annual Report to
Shareholders is incorporated by reference in this Form 10-K Annual Report.
The financial statement schedule required herein is filed as referenced in Item
14 of this Form 10-K Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On October 4, 2001, we ended the engagement of KPMG LLP and retained
PricewaterhouseCoopers LLP as our independent auditors. At that time, we filed a
Current Report on Form 8-K dated September 28, 2001. The text of the Form 8-K
Report that we filed is as follows:
17
"On October 4, 2001, Xerox Corporation ("Company") determined to change the
Company's independent accountants, and, accordingly, ended the engagement of
KPMG LLP ("KPMG") in that role and retained PricewaterhouseCoopers LLP as its
independent accountants for the fiscal year ending December 31, 2001. The Audit
Committee of the Board of Directors (the "Audit Committee") and the Board of
Directors of the Company approved the decision to change independent
accountants.
The reports of KPMG on the financial statements of the Company for each of the
fiscal years ended December 31, 2000 and December 31, 1999 contained no adverse
opinion or disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. Except to the extent
discussed below, for the fiscal years ended December 31, 2000 and December 31,
1999 and through the date of this report, there were no disagreements with KPMG
on any matter of accounting principles or practices, financial statement
disclosure or audit scope or procedure which, if not resolved to the
satisfaction of KPMG, would have caused it to make reference to the subject
matter of such disagreement in its reports on the financial statements for such
fiscal years. Nor, except to the extent discussed below, were there any
reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K for
the fiscal years ended December 31, 2000 and December 31, 1999 and through the
date of this report. With respect to the matters discussed below, the Audit
Committee discussed them with KPMG and authorized KPMG to respond fully to
inquiries of PricewaterhouseCoopers LLP concerning them.
In March 2001, KPMG informed management and the Audit Committee that it wished
to expand significantly the scope of its audit work in connection with the audit
of the Company's 2000 financial statements. KPMG proposed that certain
additional procedures be performed, including that the Audit Committee appoint
Special Counsel to conduct an inquiry into certain issues, which procedures were
performed in March, April and May 2001.
While the expanded procedures were being performed, KPMG informed the Audit
Committee and management that KPMG was unwilling to rely on representations by
two employees in one of the Company's geographic operating units. Management
removed those employees from responsibility in connection with the Company's
system of financial reporting.
As a result of observations during its 2000 audit, and other information
discussed with the Audit Committee, KPMG reported certain material weaknesses in
the Company's internal control systems and made recommendations concerning
certain components of the Company's business:
- KPMG emphasized the importance for internal control of the tone set by
the Company's top management. KPMG noted that, as a result of its audit
and information reported by Special Counsel, it believed there was
evidence that management was not successful in setting the appropriate
tone with respect to financial reporting. It recommended that the
Company take steps to remediate appropriately those issues. Certain
personnel changes have been made based in part on KPMG views offered to
the Audit Committee and management.
- Customer Business Operations (CBO) in the Company's North American
Solutions Group. KPMG noted issues with regard to CBO's ability to bill
customers accurately for services, and noted that difficulties in that
area had resulted in unfavorable billing adjustments during 2000.
Although KPMG recognized that the Company had initiated several steps
to address this issue, it concluded that it remained unclear when those
changes would result in sustained improvement in reducing non-cash
resolution adjustments of billing differences. It acknowledged that
this weakness did not suggest that the net trade receivable account
balance is unreasonably stated at December 31, 2000, but that proper
reporting required extensive evaluation of billing adjustments during
the fourth quarter. KPMG suggested various business and operational
changes to address this issue.
- Communication of Accounting and Control Policies. KPMG noted that
policy documents need to be updated, among other things to address
issues identified by the Company's worldwide audit function. Special
Counsel and KPMG, recommended that the Company also provide increased
formal training to ensure that its personnel understand the accounting
and control guidance in its policies.
- Consolidation and Corporate-Level Entries. KPMG observed that the
Company's quarterly consolidation process is manually intensive,
requiring numerous adjustments at corporate financial reporting levels.
It recommended that the Company's Consolidated Financial Information
System be augmented to enhance the monitoring and review of
corporate-level and manual entries, and further that the Company ensure
adequate segregation of duties in the preparation and approval of such
entries.
- Appropriateness of the Concessionaire Business Model in Latin American
Countries. KPMG noted that during 2000, analysis by the Company's
worldwide audit function indicated that certain issues existed with
respect to this business model, including that certain
concessionaires may lack economic substance independent of the
Company, and that certain business practices involving
concessionaires resulted in allowances with respect to receivables
in 2000. KPMG suggested periodic assessment of the financial position
of prospective and existing concessionaires, and that the Company
monitor its business relationship with them to ensure that they are
substantive independent distributors of the Company's products.
18
In addition to those items, KPMG noted that organizational changes, including
the Company's turnaround program and associated reductions in headcount, had and
would continue to stress the Company's internal control structure. KPMG
recommended that the Company take steps to ensure that issues likely to impact
the control environment receive appropriate management attention. KPMG also
recommended improved balance sheet account reconciliation and analysis on a
global basis, in particular with respect to intercompany balances.
The foregoing matters were considered by KPMG in connection with their 2000
audit and did not result in any adverse opinion or disclaimer of opinion or any
qualification or modification as to uncertainty, audit scope or accounting
principles. KPMG's auditor's report dated May 30, 2001 contained a separate
paragraph stating that the Company's 1999 and 1998 consolidated financial
statements had been restated.
The Company commenced actions in fiscal 2000 and expanded actions in fiscal 2001
which, collectively, it believes have addressed the above-discussed matters.
The Company has provided KPMG a copy of this Report and requested KPMG to
furnish it with a letter addressed to the Securities and Exchange Commission
stating whether it agrees with the statements made herein. A copy of such
letter, dated October 4, 2001, is filed as an Exhibit to the Company's Form
8-K."
19
PART III
The information contained in Exhibit 99.2 to this Annual Report on Form 10-K is
hereby incorporated herein in response to this part.
Executive Officers of Xerox
The following is a list of the executive officers of Xerox, their current ages,
their present positions and the year appointed to their present positions. Anne
M. Mulcahy, Chairman of the Board and CEO and Thomas J. Dolan, Senior Vice
President, are sister and brother. There are no other family relationships
between any of the executive officers named.
Each officer is elected to hold office until the meeting of the Board of
Directors held on the day of the next annual meeting of shareholders, subject to
the provisions of the By-Laws.
Year
Appointed
to Present Officer
Name Age Present Postion Position Since
---- --- --------------- -------- -----
Anne M. Mulcahy* 49 Chairman of the Board and 2002 1992
Chief Executive Officer
Carlos Pascual 56 Executive Vice President 2000 1994
President, Developing Markets
Operations
Lawrence A. Zimmerman 59 Senior Vice President and 2002 2002
Chief Financial Officer
Ursula M. Burns 43 Senior Vice President 2001 1997
President Document Systems
and Solutions Group
Thomas J. Dolan 57 Senior Vice President 2001 1997
President, Xerox Global Services
James A. Firestone 47 Senior Vice President 2001 1998
President, Corporate Operations
Group
Herve J. Gallaire 57 Senior Vice President 2001 1997
President, Xerox Innovation Group
and Chief Technology Officer
Gilbert J. Hatch 52 Senior Vice President 1999 1997
President, Office Systems Group
Michael C. MacDonald 47 Senior Vice President 2000 1997
President, North American
Solutions Group
* Member of Xerox Board of Directors.
20
Executive Officers of Xerox, Continued
Year
Appointed
to Present Officer
Name Age Present Position Position Since
---- --- ---------------- -------- -----
Hector J. Motroni 58 Senior Vice President and 1999 1994
Chief Staff Officer
Christina E. Clayton 54 Vice President and 2000 2000
General Counsel
Jean-Noel Machon 49 Vice President 2000 2000
President, European Solutions
Group
James J. Miller 50 Vice President 2001 2000
President, Office Printing
Business
Gregory B. Tayler 44 Vice President and Treasurer 2001 2000
Leslie F. Varon 45 Vice President and Secretary 2001 2001
Gary R. Kabureck 48 Assistant Controller and 2001 2000
Chief Accounting Officer
Each officer named above, with the exception of Lawrence A. Zimmerman and James
A. Firestone, has been an officer or an executive of Xerox or its subsidiaries
for at least the past five years.
Prior to joining Xerox in 2002, Mr. Zimmerman had been with System Software
Associates, Inc. where he was Executive Vice President and Chief Financial
Officer from 1998 - 1999. Prior to that he retired from International Business
Machines Corporation (IBM) where he was Senior Finance Executive for IBM's
Server Division from 1996 - 1998, Vice President of Finance for Europe, Middle
East and Africa Operations from 1994 - 1996 and IBM Corporate Controller from
1991 - 1994. He held various other positions at IBM from 1967 - 1991.
Prior to joining Xerox in 1998, Mr. Firestone had been with IBM where he was
General Manager, Consumer Division from 1995 to 1998. He was President, Consumer
Services at Ameritech Corporation from 1993 to 1995. Prior to this he was with
American Express Company where he was President, Travelers Cheques in 1993,
Executive Vice President, Small Business and Corporate Services from 1989 to
1993, President, Travel Related Services-Japan from 1984 to 1989, Vice
President, Finance and Planning, Travel Related Services-Japan from 1982 to 1984
and he held various other positions at American Express in Japan and at their
headquarters from 1978 to 1982.
21
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) (1) Index to Financial Statements and financial statement schedules,
filed as part of this report:
Report of Independent Accountants
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 2001
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2001
Consolidated Statements of Common Shareholders' Equity for each of
the years in the three-year period ended December 31, 2001
Notes to Consolidated Financial Statements
Financial Statement Schedule
II--Valuation and qualifying accounts
All other schedules are omitted as they are not applicable, or the
information required is included in the financial statements or
notes thereto.
(2) Supplementary Data:
Quarterly Results of Operations
Five Years in Review
Commercial and Industrial (Article 5) Schedule
(3) The exhibits filed herewith or incorporated herein by reference are
set forth in the Index of Exhibits included herein.
(b) Current Reports on Form 8-K dated October 2, 2001, October 3, 2001,
October 12, 2001, November 16, 2001, November 19, 2001, November 20,
2001, November 27, 2001, December 20, 2001 and December 27, 2001
reporting Item 5 "Other Events" and a Current Report on Form 8-K
dated September 28, 2001 (filed October 5, 2001) reporting Item 4
"Changes in Registrant's Certifying Accountant" and Item 5 "Other
Events" were filed during the last quarter of the period covered by
this Report.
(c) The management contracts or compensatory plans or arrangements
listed in the Index of Exhibits that are applicable to the executive
officers named in the Summary Compensation Table which appears in
Registrant's 2002 Proxy Statement are preceded by an asterisk (*).
(d) Financial statements required by Regulation S-X which are excluded
from the annual report to shareholders by Rule 14a-3(b), including
(1) separate financial statements of subsidiaries not consolidated
and fifty-percent-or-less-owned persons, (2) separate financial
statements of affiliates whose securities are pledged as collateral;
and (3) schedules.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
XEROX CORPORATION
By: /S/ Anne M. Mulcahy
---------------------
Chairman of the Board and
Chief Executive Officer
June 28, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
June 28, 2002
Signature Title
--------- -----
Principal Executive Officer:
/S/ Anne M. Mulcahy Chairman of the Board, Chief Executive Officer
------------------------------- and Director
Anne M. Mulcahy
Principal Financial Officer:
/S/ Lawrence A. Zimmerman Senior Vice President and Chief Financial
------------------------------ Officer
Lawrence A. Zimmerman
Principal Accounting Officer:
/S/ Gary R. Kabureck Assistant Controller and Chief Accounting
------------------------------- Officer
Gary R. Kabureck
23
/S/ Antonia Ax:son Johnson Director
-------------------------------
Antonia Ax:son Johnson
/S/ Vernon E. Jordan, Jr. Director
-------------------------------
Vernon E. Jordan, Jr.
/S/ Yotaro Kobayashi Director
-------------------------------
Yotaro Kobayashi
/S/ Hilmar Kopper Director
-------------------------------
Hilmar Kopper
/S/ Ralph S. Larsen Director
-------------------------------
Ralph S. Larsen
/S/ George J. Mitchell Director
-------------------------------
George J. Mitchell
/S/ N. J. Nicholas, Jr. Director
-------------------------------
N. J. Nicholas, Jr.
/S/ John E. Pepper Director
-------------------------------
John E. Pepper
/S/ Martha R. Seger Director
-------------------------------
Martha R. Seger
/S/ Thomas C. Theobald Director
-------------------------------
Thomas C. Theobald
24
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors of Xerox Corporation
Our audit of the consolidated financial statements referred to in our
report dated June 26, 2002, appearing in the 2001 Annual Report to
Shareholders of Xerox Corporation (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the financial statement schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related consolidated
financial statements.
As discussed in Note 2, the Company has restated its consolidated financial
statements for the years ended December 31, 2000 and 1999, previously
audited by other independent accountants.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Stamford, Connecticut
June 26, 2002
25
SCHEDULE II
Valuation and Qualifying Accounts
Year ended December 31, 2001, 2000 and 1999
Additions
Additions charged to
Balance at charged to other income Deductions Balance
beginning bad debt statement and other, net at end
(in millions) of period provision (1) accounts(1) of recoveries (2) of period
------------------------------------------------------------------------------------------------------------------------------
2001
Allowance for Losses on:
Accounts Receivable $289 $154 $30 $167 $306
Finance Receivables 345 284 38 299 368
----------------------------------------------------------------------------
$634 $438 $68 $466 $674
============================================================================
2000*
Allowance for Losses on:
Accounts Receivable $148 $299 $58 $216 $289
Finance Receivables 331 174 82 242 345
----------------------------------------------------------------------------
$479 $473 $140 $458 $634
============================================================================
1999*
Allowance for Losses on:
Accounts Receivable $105 $202 $16 $175 $148
Finance Receivables 328 184 48 229 331
----------------------------------------------------------------------------
$433 $386 $64 $404 $479
============================================================================
* As Restated
(1) Bad debt provisions relate to estimated losses due to credit and similar
uncollectibility issues. Other provisions relate to reserves necessary to
reflect other customer events of non payments such as customer
accommodations and contract terminations due to certain contractual clauses
for governmental customers.
(2) Primarily write-offs, but also includes reclassifications from other
balance sheet accounts and the impact of foreign currency translation
adjustment.
26
INDEX OF EXHIBITS
Document and Location
(3) (a) Restated Certificate of Incorporation of Registrant filed by the
Department of State of New York on October 29, 1996, as amended by
Certificate of Amendment of the Certificate of Incorporation of Registrant
filed by the Department of State of New York on May 21, 1999.
Incorporated by reference to Exhibit 3(a) to Amendment No. 5 to Registrant's
Form 8-A Registration Statement dated February 8, 2000.
(b) By-Laws of Registrant, as amended through January 1, 2002.
(4) (a)(1) Indenture dated as of December 1, 1991, between Registrant and
Citibank, N.A., as trustee, relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and as authorized
by or pursuant to a resolution of Registrant's Board of Directors (the
"December 1991 Indenture").
Incorporated by reference to Exhibit 4(a) to Registration Nos. 33-44597,
33-49177 and 33-54629.
(2) Instrument of Resignation, Appointment and Acceptance dated as of
February 1, 2001, among Registrant, Citibank, N.A., as resigning trustee,
and Wilmington Trust Company, as successor trustee, relating to the December
1991 Indenture.
Incorporated by reference to Exhibit 4 (a)(2) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 filed on June 7,
2001.
(b)(1) Indenture dated as of September 20, 1996, between Registrant and
Citibank, N.A., as trustee, relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and as authorized
by or pursuant to a resolution of Registrant's Board of Directors (the
"September 1996 Indenture").
Incorporated by reference to Exhibit 4(a) to Registration Statement
No. 333-13179.
(2) Instrument of Resignation, Appointment and Acceptance dated as of
February 1, 2001, among Registrant, Citibank, N.A., as resigning trustee,
and Wilmington Trust Company, as successor trustee, relating to the
September 1996 Indenture.
Incorporated by reference to Exhibit 4 (b)(2) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 filed on June 7,
2001.
(c)(1) Indenture dated as of January 29, 1997, between Registrant and Bank
One, National Association (as successor by merger with The First National
Bank of Chicago) ("Bank One"), as trustee (the "January 1997 Indenture"),
relating to Registrant's Junior Subordinated Deferrable Interest Debentures
("Junior Subordinated Debentures").
Incorporated by reference to Exhibit 4.1 to Registration Statement
No. 333-24193.
(2) Form of Certificate of Exchange relating to Junior Subordinated
Debentures.
Incorporated by reference to Exhibit A to Exhibit 4.1 to Registration
Statement No. 333-24193.
(3) Certificate of Trust of Xerox Capital Trust I executed as of
January 23, 1997.
Incorporated by reference to Exhibit 4.3 to Registration Statement
No. 333-24193.
(4) Amended and Restated Declaration of Trust of Xerox Capital Trust I
dated as of January 29, 1997.
Incorporated by reference to Exhibit 4.4 to Registration Statement
No. 333-24193.
(5) Form of Exchange Capital Security Certificate for Xerox Capital
Trust I.
Incorporated by reference to Exhibit A-1 to Exhibit 4.4 to Registration
Statement No. 333-24193.
27
(6) Series A Capital Securities Guarantee Agreement of Registrant dated
as of January 29, 1997, relating to Series A Capital Securities of Xerox
Capital Trust I.
Incorporated by reference to Exhibit 4.6 to Registration Statement
No. 333-24193.
(7) Registration Rights Agreement dated January 29, 1997, among
Registrant, Xerox Capital Trust I and the initial purchasers named therein.
Incorporated by reference to Exhibit 4.7 to Registration Statement
No. 333-24193.
(8) Instrument of Resignation, Appointment and Acceptance dated as of
November 30, 2001, among Registrant, Bank One as resigning trustee, and
Wells Fargo Bank Minnesota, National Association ("Wells Fargo"), as
successor Trustee, relating to the January 1997 Indenture.
(d) (1) Indenture dated as of October 1, 1997, among Registrant, Xerox
Overseas Holding Limited (formerly Xerox Overseas Holding PLC), Xerox
Capital (Europe) plc (formerly Rank Xerox Capital (Europe) plc) and
Citibank, N.A., as trustee, relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant and unlimited amounts of
guaranteed debt securities which may be issued from time to time by the
other issuers when and as authorized by or pursuant to a resolution or
resolutions of the Board of Directors of Registrant or the other issuers, as
applicable (the "October 1997 Indenture").
Incorporated by reference to Exhibit 4(b) to Registration Statement
Nos. 333-34333, 333-34333-01 and 333-34333-02.
(2) Instrument of Resignation, Appointment and Acceptance dated as of
February 1, 2001, among Registrant, the other issuers under the October 1997
Indenture, Citibank, N.A., as resigning trustee, and Wilmington Trust
Company, as successor trustee, relating to the October 1997 Indenture.
Incorporated by reference to Exhibit 4 (d)(2) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 filed on June 7,
2001.
(e) (1) Indenture dated as of April 21, 1998, between Registrant and Bank
One, as trustee, relating to $1,012,198,000 principal amount at maturity of
Registrant's Convertible Subordinated Debentures due 2018 (the "April 1998
Indenture").
Incorporated by reference to Exhibit 4(b) to Registration Statement
No. 333-59355.
(2) Instrument of Resignation, Appointment and Acceptance dated as of
July 26, 2001, among Registrant, Bank One as resigning trustee, and Wells
Fargo, as successor Trustee, relating to the April 1998 Indenture (the
"April 1998 Indenture Trustee Assignment").
(3) Amendment to Instrument of Resignation, Appointment and Acceptance
dated as of October 22, 2001, among Registrant, Bank One as resigning
trustee, and Wells Fargo, as successor Trustee, relating to the April 1998
Indenture Trustee Assignment.
(f) Indenture, dated as of July 1, 2001, between Xerox Equipment Lease Owner
Trust 2001-1 ("Trust") and U.S. Bank National Association, as trustee,
relating to $513,000,000 Floating Rate Asset Backed Notes issued by the
Trust .
(g) (1) Indenture, dated as of November 27, 2001, between Registrant and
Wells Fargo, as trustee, relating to Registrant's 7-1/2% Convertible Junior
Subordinated Debentures Due 2021.
(2) Indenture, dated as of November 27, 2001, between Xerox Funding LLC
II and Wells Fargo, as trustee, relating to Xerox Funding LLC II's 7-1/2%
Convertible Junior Subordinated Debentures Due 2021.
(3) Amended and Restated Declaration of Trust of Xerox Capital Trust II,
dated as of November 27, 2001, by Registrant, as sponsor, Wells Fargo, as
property trustee, Wilmington Trust Company, as Delaware trustee, and the
administrative trustees named therein, relating to Xerox Capital Trust II's
7-1/2% Convertible Trust Preferred Securities and 7-1/2% Convertible Common
Securities.
(4) Pledge Agreement, made as of November 27, 2001, by Xerox Funding LLC
II in favor of Wells Fargo, as trustee and for
28
the holders of Xerox Funding LLC II's 7-1/2% Convertible Junior
Subordinated Debentures Due 2021.
(h) (1) Indenture, dated as of January 17, 2002, between Registrant and
Wells Fargo, as trustee, relating to Registrant's 9-3/4% Senior Notes due
2009 (Denominated in U.S. Dollars) (the "January 17, 2002 U.S. Dollar
Indenture").
(2) Indenture, dated as of January 17, 2002, between Registrant and
Wells Fargo, as trustee, relating to Registrant's 9-3/4% Senior Notes due
2009 (Denominated in Euros) (the "January 17, 2002 Euro Indenture").
(3) Registration Rights Agreement, dated as of January 17, 2002, among
Registrant and the initial purchasers named therein, relating to
Registrant's $600,000,000 9-3/4% Senior Notes due 2009.
(4) Registration Rights Agreement, dated as of January 17, 2002, among
Registrant and the initial purchasers named therein, relating to
Registrant's (euro)225,000,000 9-3/4% Senior Notes due 2009.
(5) First Supplemental Indenture dated as of June 21, 2002 between
Registrant and Wells Fargo, as trustee, to the January 17,
2002 U.S. Dollar Indenture.
Incorporated by reference to Exhibit (4)(h)(5) to Registrant's Current
Report on Form 8-K dated June 21, 2002.
(6) First Supplemental Indenture dated as of June 21, 2002 between
Registrant and Wells Fargo, as trustee, to the January 17, 2002 Euro
Indenture.
Incorporated by reference to Exhibit (4)(h)(6) to Registrant's Current
Report on Form 8-K dated June 21, 2002.
(i) Indenture dated as of October 2, 1995, between Xerox Credit Corporation
("XCC") and State Street Bank and Trust Company ("State Street"), as
trustee, relating to unlimited amounts of debt securities which may be
issued from time to time by XCC when and as authorized by XCC's Board of
Directors or Executive Committee of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration Statement
Nos. 33-61481 and 333-29677.
(j) (1) Indenture dated as of April 1, 1999, between XCC and Citibank, N.A.,
relating to unlimited amounts of debt securities which may be issued from
time to time by XCC when and as authorized by XCC's Board of Directors or
Executive Committee of the Board of Directors (the "April 1999 XCC
Indenture").
Incorporated by reference to Exhibit 4(a) to XCC's Registration Statement
No. 33-61481.
(2) Instrument of Resignation, Appointment and Acceptance dated as of
February 1, 2001, among XCC, Citibank, N.A., as resigning trustee, and
Wilmington Trust Company, as successor trustee, relating to the April 1999
XCC Indenture.
Incorporated by reference to Exhibit 4 (h)(2) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 filed on June 7,
2001.
(k) $7,000,000,000 Revolving Credit Agreement, dated October 22, 1997, among
Registrant, XCC and certain Overseas Borrowers, as Borrowers, various
lenders and Morgan Guaranty Trust Company of New York, The Chase Manhattan
Bank, Citibank, N.A. and Bank One, as Agents.
Incorporated by reference to Exhibit 4(h) to Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2000.
(l) (1) Amended and Restated Revolving Credit Agreement, dated as of
June 21, 2002, among Registrant and Overseas Borrowers, as Borrowers,
various Lenders and Bank One, N.A., JPMorgan Chase Bank, and Citibank, N.A.
as Agents (the "Amended Credit Agreement").
Incorporated by reference to Exhibit 4(l)(1) to Registrant's Current Report
on Form 8-K dated June 21, 2002.
(2) Guarantee and Security Agreement dated as of June 21, 2002 among
Registrant, the Subsidiary Guarantors and Bank One, N.A., as Agent, relating
to the Amended Credit Agreement.
Incorporated by reference to Exhibit 4 (l) (2) to Registrant's Current
Report on Form 8-K dated June 21, 2002.
29
(3) Canadian Guarantee and Security Agreement dated as of June 21,
2002 among Xerox Canada Capital Ltd., the Guarantors and Bank One, N.A.,
Canada Branch , as Agent, relating to the Amended Credit Agreement.
Incorporated by reference to Exhibit 4 (l) (3) to Registrant's Current
Report on Form 8-K dated June 21, 2002.
(4) Deed of Guarantee and Indemnity Made June 21, 2002 between Bank
One, N.A., as Agent, and Xerox Overseas Holdings Limited and Xerox UK
Holdings Limited, as Guarantors, relating to Obligations of Xerox Capital
(Europe) plc and the Amended Credit Agreement.
Incorporated by reference to Exhibit 4 (l) (4) to Registrant's Current
Report on Form 8-K dated June 21, 2002.
(5) Debenture dated June 21, 2002 between Xerox Capital (Europe) plc
and Bank One, N.A., as Agent, relating to the Amended Credit Agreement.
Incorporated by reference to Exhibit 4 (l) (5) to Registrant's Current
Report on Form 8-K dated June 21, 2002.
(6) Mortgage, Assignment of Leases and Rents, Security Agreement,
Financing Statement and Fixture Filing dated as of June 21, 2002 by Xerox
Corporation, as Mortgagor, to Bank One, N.A., as Agent for the Lenders, the
Mortgagee, relating to property in the County of Monroe, State of New York
and the Amended Credit Agreement.
Incorporated by reference to Exhibit 4 (l) (6) to Registrant's Current
Report on Form 8-K dated June 21, 2002.
(m) Master Demand Note dated November 20, 2001 between Registrant and Xerox
Credit Corporation.
(n) Instruments with respect to long-term debt where the total amount of
securities authorized thereunder does not exceed 10% of the total assets of
Registrant and its subsidiaries on a consolidated basis have not been filed.
Registrant agrees to furnish to the Commission a copy of each such
instrument upon request.
(10) The management contracts or compensatory plans or arrangements listed
below that are applicable to the executive officers named in the Summary
Compensation Table which appears in Registrant's 2002 Proxy Statement are
preceded by an asterisk (*).
*(a) Registrant's Form of Salary Continuance Agreement.
*(b) Registrant's 1991 Long-Term Incentive Plan, as amended through
October 9, 2000.
Incorporated by reference to Exhibit 10 (b) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
(c) Registrant's 1996 Non-Employee Director Stock Option Plan, as amended
through May 20, 1999.
Incorporated by reference to Registrant's Notice of the 1999 Annual Meeting
of Shareholders and Proxy Statement pursuant to Regulation 14A.
*(d) Description of Registrant's Annual Performance Incentive Plan.
*(e) 1997 Restatement of Registrant's Unfunded Retirement Income Guarantee
Plan, as amended through October 9, 2000.
Incorporated by reference to Exhibit 10 (e) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
*(f) 1997 Restatement of Registrant's Unfunded Supplemental Retirement Plan,
as amended through October 9, 2000
Incorporated by reference to Exhibit 10 (f) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
(g) Executive Performance Incentive Plan.
30
(h) 1996 Amendment and Restatement of Registrant's Restricted Stock Plan
for Directors.
*(i) Form of severance agreement entered into with various executive
officers, effective October 15, 2000
Incorporated by reference to Exhibit 10 (i)(2) to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 2000 filed on June 7,
2001.
*(j) Registrant's Contributory Life Insurance Program, as amended as of
January 1, 1999.
Incorporated by reference to Exhibit 10(j) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1999.
(k) Registrant's Deferred Compensation Plan for Directors, 1997 Amendment
and Restatement, as amended through October 9, 2000.
Incorporated by reference to Exhibit 10 (k) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
*(l) Registrant's Deferred Compensation Plan for Executives, 1997 Amendment
and Restatement, as amended through October 9, 2000.
Incorporated by reference to Exhibit 10 (l) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
*(m) letter Agreement dated June 4, 1997 between Registrant and G. Richard
Thoman, former President and Chief Executive Officer of Registrant.
Incorporated by reference to Exhibit 10(m) to Registrant's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1997.
*(n) Registrant's 1998 Employee Stock Option Plan, as amended through
October 9, 2000.
Incorporated by reference to Exhibit 10 (n) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
*(o) Registrant's CEO Challenge Bonus Program.
Incorporated by reference to Exhibit 10 (o) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
*(p) Separation Agreement dated May 11, 2000 between Registrant and
G. Richard Thoman, former President and Chief Executive Officer of
Registrant.
Incorporated by reference to Exhibit 10 (p) to Registrant's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 2000.
*(q) Letter Agreement dated December 4, 2000 between Registrant and
William F. Buehler, Vice Chairman of Registrant.
Incorporated by reference to Exhibit 10 (p) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
(r) (1) Separation Agreement dated October 3, 2001 between Registrant
and Barry D. Romeril, Vice Chairman and Chief Financial
Officer of Registrant.
(2) Form of Release between Registrant and Barry D. Romeril, Vice Chairman
and Chief Financial Officer of Registrant.
(s) Letter Agreement dated April 2, 2001 between Registrant and Carlos
Pascual, Executive Vice President of Registrant.
31
Incorporated by reference to Exhibit 10 (s) to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 filed on June 7, 2001.
(t) (1) Master Supply Agreement, dated as of November 30, 2001, between
Registrant and Flextronics International Ltd. **
(12) Computation of Ratio of Earnings to Fixed charges.
(13) Registrant's 2001 Annual Report to Shareholders.
(21) Subsidiaries of Registrant.
(23) Consent of PricewaterhouseCoopers LLP.
(99.1) Order under Section 36 of the Securities Exchange Act of 1934
Granting Exemptions from Certain Provisions of the Act and Rules Thereunder,
dated April 11, 2002 (Release No. 45730).
Incorporated by reference to Exhibit 99.2 to Registrant's Current Report on
Form 8-K dated April 11, 2002.
(99.2) Directors and Officers Information
** Pursuant to the Freedom of Information Act, the confidential portion of
this material has been omitted and filed separately with the Securities
and Exchange Commission.
32