Xerox 2003 Annual Report Download - page 33

31
This trend is expected to moderate as our equipment
sales continue to increase. These cash flows were par-
tially offset by pension plan contributions of $672 mil-
lion related to our decision to accelerate and increase
the 2003 funding level of our U.S. plans and increase
the 2003 funding level of our U.K. plans, restructuring
related cash payments of $345 million, income tax
payments of $207 million and $166 million of cash out-
flow supporting our on-lease equipment investment.
The $101 million decline in operating cash flow
versus 2002 primarily reflects increased pension plan
contributions of $534 million, lower finance receivable
reductions of $258 million reflecting the increase in
equipment sale revenue in 2003, and increased on-lease
equipment investment of $39 million. These items
were partially offset by increased pre-tax income of
$332 million, lower tax payments of $235 million and
increased cash proceeds from the early termination
of interest rate swaps of $80 million. The lower tax
payments reflect the absence of the $346 million tax
payment associated with the 2001 sale of a portion of
our ownership interest in Fuji Xerox.
For the year ended December 31, 2002, operating
cash flows of $2.0 billion reflect pre-tax income of
$104 million and the following non-cash items: depre-
ciation and amortization of $1,035 million, provisions
for receivables and inventory of $468 million and
impairment of goodwill of $63 million. Cash flows
were also enhanced by finance receivable reductions
of $754 million due to collection of receivables from
prior year’s sales without an offsetting receivables
increase due to lower equipment sales in 2002, togeth-
er with a transition to third-party vendor financing
arrangements in the Nordic countries, Italy, Brazil and
Mexico. In addition, a restructuring charge of $670 mil-
lion was recorded during the period. These items were
partially offset by $442 million of tax payments,
including $346 million related to the 2001 sale of half
of our interest in Fuji Xerox, $392 million of restructur-
ing payments, $127 million of on-lease equipment
expenditures and a $138 million cash contribution to
our pension plans.
The $226 million improvement in operating cash
flow as compared to 2001 reflects increased finance
receivable collections of $666 million, an improvement
in cash flows from the early termination of derivative
contracts of $204 million, lower on-lease equipment
spending of $144 million and lower restructuring pay-
ments of $92 million. The decline in 2002 on-lease
equipment spending reflected declining rental place-
ment activity and populations, particularly in our
older-generation light-lens products. These items were
partially offset by higher cash taxes of $385 million,
higher pension contributions of $96 million and
increased working capital uses of over $400 million,
much of which was caused by the termination of an
accounts receivable sales facility. In addition, cash
flow generated by reducing inventory during 2002
occurred at a much slower rate than in 2001 as inven-
tory reductions were offset by increased requirements
for new product launches.
We expect operating cash flows to approximate
$1.5 billion in 2004, as compared to $1.9 billion in
2003. The reduction contemplates finance receivables
growth as a result of continued expected equipment
sales expansion as well as the absence of early deriva-
tive contract termination cash flow, partially offset by
reduced restructuring payments and lower pension
contributions.
Investing: Investing cash flows for the year ended
December 31, 2003 consisted primarily of $235 million
released from restricted cash related to former rein-
surance obligations associated with our discontinued
operations, $35 million of aggregate cash proceeds
from the divestiture of our investment in Xerox South
Africa, XES France and Germany and other minor
investments, partially offset by capital and internal use
software spending of $250 million. We expect 2004
capital expenditures to approximate $250 million.
Investing cash flows for the year ended December
31, 2002 consisted primarily of proceeds of $200 mil-
lion from the sale of our Italian leasing business, $53
million related to the sale of certain manufacturing
locations to Flextronics, $67 million related to the sale
of our interest in Katun and $19 million from the sale
of our investment in Prudential common stock. These
inflows were partially offset by capital and internal use
software spending of $196 million and increased
requirements of $63 million for restricted cash sup-
porting our vendor financing activities.
Investing cash flows in 2001 largely consisted of
the $1,768 million of cash received from sales of busi-
nesses, including one half of our interest in Fuji Xerox,
our leasing businesses in the Nordic countries and
certain manufacturing assets to Flextronics. These
cash proceeds were offset by capital and internal use
software spending of $343 million, a $255 million pay-
ment related to our funding of trusts to replace letters
of credit within our insurance discontinued operations,
$115 million of payments for the funding of escrow
requirements related to lease contracts transferred to
GE, $229 million of payments for the funding of
escrow requirements related to pre-funded interest
payments required to support our liabilities to trusts
issuing preferred securities and $217 million of pay-
ments for other contractual requirements.
Financing: Financing activities for the year ended
December 31, 2003 consisted of net proceeds from
secured borrowing activity with GE and other vendor
financing partners of $269 million, net proceeds from
the June 2003 convertible preferred stock offering of
$889 million, net proceeds from the June 2003 com-
mon stock offering of $451 million, offset by preferred
stock dividends of $57 million and other net cash out-