STAMFORD, Conn. and SINGAPORE-Oct. 2, 2001-- Taking another major step forward in its turnaround plan to reduce costs, improve productivity and increase competitiveness, Xerox Corporation today announced a manufacturing agreement with Flextronics, a $12 billion global electronics manufacturing services (EMS) company. The agreement includes payment to Xerox of approximately $220 million and assumption of certain liabilities for the sale of inventory, property and equipment and a five-year contract for Flextronics to manufacture certain Xerox office equipment and components, at a modest premium over book value. Xerox will sell to Flextronics office manufacturing operations including manufacturing assets and inventory in Toronto; Resende, Brazil; Aguascalientes, Mexico; and Penang, Malaysia. The approximately 3,650 current Xerox employees in these operations are expected to transfer to Flextronics. "Our agreement with Flextronics will redefine our office manufacturing strategy through significantly improved asset utilization, greater supply chain flexibility and cost savings as well as generating cash from the asset sales,'' said Anne M. Mulcahy, Xerox president and chief executive officer. 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 also begin the manufacturing of Xerox's electronic parts and subsystems during the first half of 2002. Xerox will continue to strengthen its manufacturing competencies in high-end production printing and publishing equipment, toner and imaging supplies through its remaining global manufacturing plants. 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. "This agreement exemplifies the type of business that we have built Flextronics to handle and is further evidence that the trend towards virtual manufacturing continues,'' said Michael E. Marks, chairman and chief executive officer of Flextronics. "This is also an opportunity to expand our customer base and product portfolio through the acquisition of these sites in addition to gaining valuable knowledge through the Xerox people.'' "Our partnership with Flextronics ensures that all Xerox office products and components will continue to be produced under the high quality standards that customers rely on from Xerox,'' said Ursula Burns, president, Xerox Worldwide Business Services. "At the same time, Xerox will benefit from Flextronics' commitment to significant annual productivity improvements, maximizing its large-scale purchasing and technological efficiencies.'' Today's announcement with Flextronics is the latest in a series of Xerox turnaround-related actions that are restoring Xerox's financial strength and positioning the company for a return of profitability. For example, Xerox announced last month a framework agreement with GE Capital's Vendor Financial Services to become the primary equipment-financing provider for Xerox's U.S. customers. The two companies also agreed to the principal terms of a financing agreement under which Xerox will receive from GE Capital approximately $1 billion secured by Xerox's lease receivables in the United States. Xerox's agreement with Flextronics is expected to close in stages subject to the completion of global regulatory requirements. Xerox will receive cash proceeds from the agreement in phases as the companies close on the individual worldwide asset sales. Deutsche Banc Alex. Brown served as Xerox's advisor on this agreement.