Taking a step in its turnaround plan to reduce costs, Xerox Corporation has formed a manufacturing agreement with Flextronics, that will allow the company to manufacture Xerox office equipment and components.
The deal itself includes a payment to Xerox of approximately $220 million and assumption of certain liabilities for the sale of inventory, property and equipment.
Xerox will sell to Flextronics office manufacturing operations including manufacturing assets and inventory in Toronto; Resende, Brazil; Aguascalientes, Mexico; and Penang, Malaysia. Approximately 3,650 current Xerox employees in these operations are expected to transfer to Flextronics.
The company also said that it will stop production by the end of the second quarter 2002 at its printed circuit board factory in El Segundo, CA, and its customer replaceable unit plant in Utica, NY. The operation in El Segundo currently employs 425; Utica’s employment is 265. When these plants close, Flextronics will build the work into its global network of manufacturing plants.
In addition, Xerox will begin consultations with European works councils regarding the sale of its office manufacturing operations in Venray, The Netherlands, and the transfer to Flextronics of some production work currently performed at Xerox’s site in Mitcheldean, England.
As a result of these actions, Xerox expects to incur cash restructuring charges that will approximately equal the premium over book value from the asset sales.
Xerox and Flextronics expect that the first in a series of closings on the asset sales will occur in the fourth quarter, beginning a one-year transition period for Flextronics to assume manufacturing of Xerox-designed office products and related components.
Flextronics will begin the manufacturing of Xerox’s electronic parts and subsystems during the first half of 2002.
In total, the agreement with Flextronics represents in excess of $1 billion in annual manufacturing costs, approximately 50 percent of Xerox’s overall manufacturing operations.