-- Xerox Corporation
(NYSE: XRX) today announced a third quarter loss of 20 cents per share,
before an incremental 6 cent charge related to its Mexican subsidiary. The
company also outlined an aggressive turnaround program that includes
cutting $1 billion in costs, asset dispositions that are expected to raise
$2 billion to $4 billion, and strengthening the company's strategic core.
"It is clear that just fixing our operational issues, although
critical, is not sufficient. We must fundamentally resize our cost base,
cut our investment levels and significantly improve our balance sheet with
asset sales and alternative means of providing customer financing," said
Paul A. Allaire, Xerox chairman and CEO. "None of these efforts will
compromise our core strategy, each will contribute to our turnaround and
all are designed to enhance value for all stakeholders - customers, credit
providers, shareholders and employees."
Third Quarter Highlights
Third quarter revenue was
$4.5 billion, 4 percent lower than the 1999 third quarter. Pre-currency
revenue declined 1 percent. Including a $55 million pre-tax provision
associated with the company's previously announced issues in Mexico, the
third quarter net loss was $167 million. No additional provisions related
to Mexico are anticipated.
Equipment sales in the quarter were weak primarily in North America,
and particularly in the high end of the business due to open sales
territories, less experienced sales people and increased competitive
pressure, which also affected gross margins.
However, the company's color product lineup turned in an outstanding
performance with color revenue advancing 74 percent, led by the DocuColor
2060 and DocuColor 2045 Digital Color Presses, strong placements of the
DocuColor 12 and Document Centre ColorSeries 50 digital multifunction
products, excellent growth in desktop inkjet printers from initial
shipments of the company's new DocuPrint M series products, and the
inclusion of the Phaser line of color printers. Color revenues represented
16 percent of the third quarter revenue, up from 9 percent in the third
quarter last year.
Turnaround Program Detailed
Xerox also outlined a
wide-ranging plan to sell assets, cut costs and strengthen its strategic
core.
The company said it is exploring alternatives to provide financing for
customers in a manner that does not involve the Xerox balance sheet. Over
time, the company will exit the equipment financing business, but continue
to ensure that service is provided to its customers.
Xerox revealed that it was also actively engaged in discussions to sell
a range of assets that includes: the company's China operations, a portion
of the Xerox ownership in Fuji Xerox, Xerox Engineering Systems, and its
interest in spin-off companies such as ContentGuard and Inxight. Xerox
said it was talking with a number of parties to make a significant equity
investment in its inkjet business and was exploring a joint venture with
non-competitive partners for its storied Palo Alto Research Center. The
company also said it would outsource or sell certain manufacturing
operations.
"The combination of all of these actions - the previously announced
dividend reduction, the focus on operational cash, the asset dispositions
and financing options will significantly strengthen the balance sheet, and
reduce our debt level," said Allaire. "This will sharpen our competitive
edge, deliver the superior products and services that our customers
require, and generate the value that our credit providers and shareholders
require."
Xerox also detailed steps designed to reduce costs by $1 billion in
2001.
"Our actions are centered on improved cash flow and profitability - and
at the same time strengthening our strategic core," said Anne M. Mulcahy,
president and chief operating officer. "These actions will be implemented
in a disciplined and controlled manner, but we are moving forward with a
sense of urgency."
The plan mandates drastic cuts by:
- reallocating resources from headquarters operations to the field,
eliminating duplicative industry-and-product organizations and, in
certain developing market countries, moving to a distributor-based
product-sales approach,
- reducing more than $200 million in manufacturing and supply chain
costs,
- attacking service costs with a greater emphasis on remote
diagnostics and third-party service providers, and by moving activities
into the operating companies to eliminate a worldwide service staff
organization,
- substantially increasing the number of positions removed from the
company.
The company will re-allocate research and development
efforts to underpin growth opportunities in solutions and color, work more
closely with Fuji Xerox to eliminate R&D redundancies and scrutinize
all programs based on their affordability and future profitability.
Mulcahy said the company would focus most of its direct-sales and
document outsourcing resources to the high-end, high-value solutions and
services business, using more efficient channels to deliver a greater
range of products to customers in the digital office, reducing selling
costs.
"This plan provides Xerox with a strong financial foundation, to build
on the unique strengths inherent in our brand, market position,
technology, people and leadership team," Mulcahy said.
Xerox reiterated that it has adequate liquidity, including unutilized
capacity under its $7 billion revolving credit agreement, and that it is
in compliance with all of its covenants.
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Note to Editors: This release contains forward-looking
statements and information relating to Xerox that are based on our beliefs
as well as assumptions made by and information currently available to us.
The words "anticipate," "believe," "estimate," "expect," "intend," "will"
and similar expressions, as they relate to us, 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 company's Form 8-K filed with the SEC on October 24, 2000.
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