Xerox 2003 Annual Report Download - page 54

52
ments that ensure that both parties have access to
each other’s portfolio of patents, technology and prod-
ucts. Fuji Xerox continues to provide products to us as
well as collaborate with us on R&D.
Flextronics Manufacturing Outsourcings: In the fourth
quarter of 2001, we entered into purchase and supply
agreements with Flextronics, a global electronics manu-
facturing services company. Under the agreements,
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 transac-
tions, which were completed in 2002. In total, approxi-
mately 4,100 Xerox employees in certain of these
operations transferred to Flextronics. Total proceeds
from the sales in 2002 and 2001 were $167, plus the
assumption of certain liabilities, representing a premi-
um 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, includ-
ing electronic components, for the Office segment of
our business. This represents approximately 50 per-
cent of our overall worldwide manufacturing opera-
tions. The initial term of the Flextronics supply
agreement is five years subject to our right to extend
for two years. Thereafter it will automatically be
renewed for one-year periods, unless either party
elects to terminate the agreement. We have agreed to
purchase from Flextronics most of our requirements
for certain products in specified product families. We
also must purchase certain electronic components
from Flextronics so long as Flextronics meets certain
pricing requirements. Flextronics must acquire inven-
tory in anticipation of meeting our forecasted require-
ments and must maintain sufficient manufacturing
capacity to satisfy such forecasted requirements.
Under certain circumstances, we may become obligat-
ed to repurchase inventory that remains unused for
more than 180 days, becomes obsolete or upon termi-
nation of the supply agreement. Our remaining manu-
facturing operations are primarily located in Rochester,
NY for our high end production products and consum-
ables and Wilsonville, OR for consumable supplies and
components for the Office segment products.
Note 4 – Receivables, Net
Finance Receivables: Finance receivables result from
installment arrangements and sales-type leases aris-
ing from the marketing of our equipment. These
receivables are typically collateralized by a security
interest in the underlying assets. The components of
Finance receivables, net at December 31, 2003 and
2002 follow:
2003 2002
Gross receivables $10,599 $10,685
Unearned income (1,651) (1,628)
Unguaranteed residual values 180 272
Allowance for doubtful accounts (315) (324)
Finance receivables, net 8,813 9,005
Less: Billed portion of finance
receivables, net (461) (564)
Current portion of finance
receivables not billed, net (2,981) (3,088)
Amounts due after one year, net $ 5,371 $ 5,353
Contractual maturities of our gross finance receiv-
ables subsequent to December 31, 2003 follow
(including those already billed of $461):
There-
2004 2005 2006 2007 2008 after Total
$4,206 $2,862 $1,948 $1,098 $401 $84 $10,599
Our experience has shown that a portion of these
finance receivables will be prepaid prior to maturity.
Accordingly, the preceding schedule of contractual
maturities should not be considered a forecast of
future cash collections.
Vendor Financing Initiatives: In 2002, we completed an
agreement (the “Loan Agreement”), under which GE
Vendor Financial Services, a subsidiary of GE, became
the primary equipment financing provider in the U.S.,
through monthly fundings of our new lease origina-
tions. In March 2003, the agreement was amended to
allow for the inclusion of state and local governmental
contracts in future fundings.
Under the agreement, GE is expected to fund a
significant portion of new U.S. lease originations at
over-collateralization rates, which will vary over time,
but are expected to approximate 10 percent at the
inception of each funding. The securitizations are sub-
ject to interest rates calculated at each monthly loan
occurrence at yield rates consistent with average rates
for similar market based transactions. Refer to Note 10
for further information on interest rates. The funds
received under this agreement are recorded as
secured borrowings and the associated receivables
are included in our Consolidated Balance Sheet. GE’s
funding commitment is not subject to our credit rat-
ings. There are no credit rating defaults that could
impair future funding under this agreement. This
agreement contains cross default provisions related to
certain financial covenants contained in the 2003
Credit Facility and other significant debt facilities. Any
default would impair our ability to receive subsequent
funding until the default was cured or waived but
does not accelerate previous borrowings. However, in
the event of a default, we could be replaced as the
maintenance service provider for the associated
equipment under lease.