Xerox 2008 Annual Report Download - page 25

finance receivables and $0.6 billion of equipment on operating
leases, or Total Finance assets of $7.9 billion. We maintain an
assumed 7:1 leverage ratio of debt to equity as compared to our
Finance assets and therefore a significant portion of our $8.4
billion of debt is associated with our financing business.
In addition to being an excellent customer retention vehicle, our
customer financing program also achieves an attractive gross
margin which provides us a reasonable return on our investment in
this business. This program is also a strong value proposition for
our customers because it provides them a bundled monthly
payment for their document management needs and an attractive
financing alternative.
Service
As of December 31, 2008, we had a worldwide service force of
approximately 13,000 employees and an extensive variable
contract service force. We continue to expand our use of cost-
effective remote service technology for basic product offerings
while utilizing our direct service force and a variable contract
service force to address customers’ more advanced technology
requirements. The increasing use of a variable contract service
force is consistent with our strategy to reduce service costs while
maintaining high-quality levels of service. We believe that our
service force represents a significant competitive advantage
because it is continually trained on our products and its diagnostic
equipment is state-of-the-art. We offer service 24 hours a day,
7 days a week, in major metropolitan areas around the world,
providing a consistent and superior level of service worldwide.
Manufacturing and Supply
Our manufacturing and distribution facilities are located around
the world. The company’s largest manufacturing site is in Webster,
N.Y., where we make fusers, photoreceptors, Xerox iGen and
Nuvera systems, components, consumables and other products.
Additionally this year, updates were made at the EA Toner plant in
Webster, N.Y. that was built in 2007 to give the plant the flexibility
to meet demand for both first and second generations of EA
Toner. This allows the plant to produce the new breakthrough Ultra
Low-Melt EA Toner. Our remaining primary manufacturing
operations are located in: Dundalk, Ireland for our high-end
production products and consumables; and Wilsonville, Oregon for
solid ink products, consumable supplies, and components for our
Office segment products. We also have a major facility in Venray,
Netherlands, that handles supplies manufacturing and supply
chain management for the eastern hemisphere.
We are currently in the second year of a master supply agreement
with Flextronics, a global electronics manufacturing services
company, to outsource portions of manufacturing for our Office
segment. The agreement has a three year term, with two
additional one-year extension periods at our option. Our inventory
purchases from Flextronics currently represent approximately 15%
of our overall worldwide inventory procurement and production.
Our pricing for inventory sourced through Flextronics is generally
market based. We have agreed to purchase from Flextronics some
products and consumables within specified product families
although we do have the ability to source product from other
suppliers without penalty to extent needed. Flextronics is required
to acquire inventory based on our forecasted requirements and
must maintain sufficient manufacturing capacity to satisfy these
requirements. Under certain circumstances, we may become
obligated to purchase inventory that remains unused for more
than 180 days, becomes obsolete or remains unused on the
termination of the supply agreement. If Flextronics were unable to
continue to supply product, it would not result in a material
disruption to our business because Flextronics primarily provides
contract assembly labor and we continue to manage the inbound
sourcing and supply chain management of raw materials and
sub-assembly parts. In addition, we own the tooling and
technology that Flextronics currently uses to produce our products;
there are a number of alternative suppliers that could replace the
contract assembly labor Flextronics provides and we have business
resumption plans in place for Flextronics and other similar
suppliers.
We acquire other office products from various third parties in order
to increase the breadth of our product portfolio and meet channel
requirements. We have arrangements with Fuji Xerox under which
we purchase and sell products, some of which are the result of
mutual research and development arrangements. Refer to Note 7 –
Investments in Affiliates, at Equity in the Consolidated Financial
Statements in our 2008 Annual Report for additional information
regarding our relationship with Fuji Xerox.
Fuji Xerox
Fuji Xerox is an unconsolidated entity in which we currently own a
25% interest and FUJIFILM Holdings Corporation (“FujiFilm”) owns
a 75% interest. Fuji Xerox develops, manufactures and distributes
document processing products in Japan, China, Hong Kong, other
areas of the Pacific Rim, Australia and New Zealand. We retain
significant rights as a minority shareholder. Our technology
licensing agreements with Fuji Xerox ensure that the two
companies retain uninterrupted access to each other’s portfolio of
patents, technology and products.
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