Xerox 2002 Annual Report Download - page 58

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Statements of Income, was $27 primarily related to
recognition of cumulative translation adjustment loss-
es and final sale contingency settlements.
Prudential Insurance Company Common Stock: In the
first quarter of 2002, we sold common stock of
Prudential Insurance Company, associated with that
company’s demutualization. In connection with this
sale, we recognized a pre-tax gain of $19 that is
included in Other Expenses, net, in the accompanying
Consolidated Statement of Income.
Delphax: In December 2001, we sold Delphax
Systems and Delphax Systems, Inc. (“Delphax”) to
Check Technology Canada LTD and Check Technology
Corporation for $16. The transaction was essentially
break-even. Delphax designs, manufactures and sup-
plies high-speed electron beam imaging digital print-
ing systems and related parts, supplies and services.
Nordic Leasing Business: In April 2001, we sold our
leasing businesses in four Nordic countries to a com-
pany now owned by GE, for $352 in cash and retained
interests in certain finance receivables for total pro-
ceeds of approximately $370 which approximated
book value. These sales are part of an agreement
under which that company will provide ongoing,
exclusive equipment financing to our customers in
those countries.
Fuji Xerox Interest: In March 2001, we sold half of our
ownership interest in Fuji Xerox to Fuji Photo Film
Co., Ltd (“Fuji Film”) for $1.3 billion in cash. In
connection with the sale, we recorded a pre-tax gain
of $773. Under the agreement, Fuji Film’s ownership
interest in Fuji Xerox increased from 50 percent to 75
percent. Our ownership interest decreased to 25 per-
cent and we retain significant rights as a minority
shareholder. We have product distribution and tech-
nology agreements that ensure that both parties have
access to each other’s portfolio of patents, technology
and products. Fuji Xerox continues to provide prod-
ucts to us as well as collaborate with us on R&D.
Xerox China: In December 2000, we sold our China
operations to Fuji Xerox for $550. In connection
with the sale, Fuji Xerox also assumed $118 of
indebtedness. We recorded a pre-tax gain of $200 in
connection with this transaction. Prior to the sale, our
China operations had revenue of $262 in 2000, which
is included in the accompanying Consolidated
Statement of Income. While Fuji Xerox is our affiliate,
we believe the negotiations for this transaction were
similar to those that would have been entered into
with an unaffiliated third party, both in terms of price
and conditions. Both parties were represented by sep-
arate legal counsel.
Commodity Paper Product Line: In June 2000, we
entered an agreement with Georgia Pacific to sell our
U.S. and Canadian commodity paper product line and
customer list and recorded a pre-tax gain of $40 which
is included in Other expenses, net, which represented
the proceeds from the sale. We also granted a ten-year
exclusive license related to the use of the Xerox brand
name on future paper sales in exchange for a fair value
royalty agreement. In conjunction with the sale, we
also became an agent of Georgia Pacific for which we
earn a market-based commission on sales of commod-
ity paper. Subsequently, in January 2003, we discontin-
ued the agency relationship without penalty, and
resumed direct commodity paper sales.
ContentGuard: In April 2000, we sold a 25 percent
ownership interest in our wholly-owned subsidiary,
ContentGuard, to Microsoft, Inc. for $50 and recognized
a pre-tax gain of $23, which is included in Other
expenses, net in the accompanying Consolidated
Statement of Income. An additional pre-tax gain of $27
was deferred, pending the achievement of certain per-
formance criteria. In May 2002, we repaid Microsoft
$25, as the performance criteria had not been achieved.
In connection with the sale, ContentGuard also
received $40 from Microsoft for a non-exclusive license
of its patents and other intellectual property and a $25
advance against future royalty income from Microsoft
on sales of products incorporating ContentGuard’s
technology. The license payment is being amortized
over the ten-year life of the license agreement due to
continuing obligations we have, related to our majority
ownership of ContentGuard. The royalty advance will
be recognized in income as earned. These amounts are
not refundable.
Flextronics Manufacturing Outsourcings: In the fourth
quarter of 2001, we entered into purchase and supply
agreements with Flextronics, a global electronics
manufacturing services company. Under the agree-
ments, Flextronics purchased related inventory,
property and equipment. Pursuant to the purchase
agreement, we sold our operations in Toronto,
Canada; Aguascalientes, Mexico; Penang, Malaysia;
Venray, The Netherlands and Resende, Brazil to
Flextronics in a series of transactions, which were
completed in 2002. In total, approximately 4,100
Xerox employees in certain of these operations trans-
ferred to Flextronics. Total proceeds from the sales in
2002 and 2001 were $167, plus the assumption of cer-
tain liabilities, representing a premium over book
value. The premium is being amortized over the life of
the supply contract.
Under the supply agreement, Flextronics manufac-
tures and supplies equipment and components,
including electronic components, for the Office seg-
ment of our business. This represents approximately
50 percent of our overall worldwide manufacturing