Re Agreement

RNS Number:0046L
Xerox Corp
2 October 2001



For additional Information contact:

Leslie F. Varon
Vice President, Investor Relations
203-968-3110
[e-mail]

Cynthia B. Johnston 
Manager, Investor Relations 
203-968-3489 
[e-mail]


      XEROX TO TRANSFER OFFICE MANUFACTURING OPERATIONS TO FLEXTRONICS
      
      Agreement Includes Sale of Assets for Approximately $220 Million

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 (NYSE: XRX) today announced a manufacturing 
agreement with Flextronics (NASDAQ: FLEX), 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.

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, Calif., and its
customer replaceable unit plant in Utica, N.Y. 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 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.

Flextronics will discuss this agreement and provide a strategic review and 
general update of the company's business and outlook during its previously 
announced analyst meeting today from 1:00 p.m. to 5:00 p.m. EST. This meeting 
will be broadcast via the Internet and may be accessed at www.flextronics.com.


About Xerox
Headquartered in Stamford, Conn., Xerox Corporation is a USD$18.7 billion global
enterprise with 85,000 employees serving customers in 130 countries. Xerox makes
the digital world work better with an array of innovative document solutions, 
services and systems - including color and black-and-white digital printers, 
multifunction devices and copiers - designed for offices and production-printing
environments. Xerox Worldwide Business Services, based in Webster, N.Y., is 
responsible for all manufacturing operations, which currently employs 14,400 
people. For further information, www.xerox.com.

About Flextronics
Headquartered in Singapore, Flextronics is a world-class Electronics 
Manufacturing Services (EMS) provider focused on delivering operational services
to branded technology companies.  With fiscal year 2001 revenues of USD$12 
billion and approximately 70,000 employees. Flextronics is a major global 
operating company with design, engineering, manufacturing and logistics 
operations in 27 countries and four continents. This global presence allows for 
manufacturing excellence through a network of facilities situated in key markets
and geographies that in turn provide its customers with the resources, 
technology and capacity to optimize their operations. Flextronics' ability to 
provide end-to-end operational services that includes innovative product design,
manufacturing, IT expertise and logistics has established the company as a top-
tier EMS provider. For further information, visit www.flextronics.com.

This release contains forward-looking statements and information relating to 
Xerox and Flextronics that are based on the companies' beliefs as well as 
assumptions made by and information currently available to them. The words 
"anticipate," "believe," "estimate," "expect," "intend," "will" and similar 
expressions, as they relate to Xerox and Flextronics, are intended to identify 
forward-looking statements. Actual results could differ materially from those 
projected in such forward-looking statements. Information concerning certain 
factors that could cause actual results to differ materially is included in the 
companies' Form 10-Qs filed recently with the SEC. The forward-looking 
statements in this news release are based on current expectations. Neither 
company assumes any obligation to update these forward-looking statements.

XEROX(R) The Document Company(R) and the digital X(R) are trademarks of XEROX 
CORPORATION.