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Xerox 3Q disappoints
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October 24, 2000: 2:32 p.m. ET
Copier maker to sell up to $4B of assets, cut jobs to stem losses
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NEW YORK (CNNfn) - Xerox Corp. Tuesday posted its first quarterly loss in 16 years, prompting the troubled copier company to disclose a brash turnaround plan that includes cutting more jobs, selling its stake in several of its businesses and wrapping up its once-lucrative sales and financing unit.
After several earnings warnings, Xerox posted a loss of $128 million, or 20 cents a share, before special items, a penny worse than the 19-cent average estimate of analysts polled by First Call. The company earned $339 million, or 50 cents a share, a year earlier. With special items including provisions for losses in Mexico, Xerox lost $167 million, or 26 cents a share.
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Xerox Chairman Paul Allaire speaks with CNNfn's Steve Young about the company's restructuring plan.
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Sales fell 4 percent to $4.5 billion from $4.6 billion.
The disappointing results preceded an ambitious plan from the world's biggest copier company to raise as much as $4 billion by selling off some of its assets. It also plans to cut $1 billion in annual costs, partly through substantial job cuts. And executives of the troubled copier maker said that while Xerox would not turn around in the fourth quarter of this year, they do expect to return to profitability in 2001.
"We were aware that we really had to change the cost structure of the company and change the investment profile and the focus to some degree and shed some assets in order to remain competitive," Xerox Chairman and Chief Executive Paul Allaire told CNNfn. "It is clear that just fixing our operational issues, although critical, is not sufficient."
The old-fashioned document company
Xerox, the document company as its best known, has fallen out of favor in the past year or so for continuing to focus on products and services that deal with documents and failing to embrace more paperless technologies such as computer networking systems and scanning devices. While once considered the mainstay of the blue-chip technology community, with a stable $60 stock price to boot, it has been criticized for not embracing more wired products and services.
 It also has been double-whacked by slower sales and dwindling market share to rivals such as Ikon Office Solutions (IKN: Research, Estimates), Global Imaging Systems (GISX: Research, Estimates) and Danka Business Systems PLC (DANKY: Research, Estimates), according to analysts.
All that has fueled Wall Street rumors in recent weeks ranging from a significant cash crunch for the Stamford, Conn.-based company to outright bankruptcy. On Oct. 9, the company cut its quarterly dividend to 5 cents a share from 20 cents in an effort to save an additional $400 million.
But analysts and investors have been concerned mainly about Xerox's inability to borrow in the money market since it disclosed its earnings woes earlier this month. The company currently is on watch for a possible rating cut by Moody's Investors Service Inc., and Standard & Poor's Tuesday lowered its short- and long-term ratings for Xerox Corp. and its subsidiaries.
Running on empty
That could push Xerox's commercial debt to below investment grade, shutting it out of the commercial paper market, analysts said.
Indeed, the company is running on borrowed money. Xerox is currently using a $7 billion line of credit to fund its operations after investors demanded higher yields on its outstanding commercial debt. The company has another $2.2 billion available from the line of credit, which was provided by 58 banks, according to Xerox Chief Financial Officer Barry Romeril.
Among other initiatives, the company said it is negotiating to sell an additional 25 percent of its 50-50 venture in Fuji Xerox back to Fuji, leaving it with a 25 percent minority stake in the division. Fuji, the world's No. 2 photo film maker, confirmed it is in talks to buy half of Xerox's portion of Fuji Xerox, as well as Xerox's China operation. Fuji Xerox handles the Asia- Pacific market, excluding China. It ranks third in Japan's copier market.
Xerox also is in talks to sell Xerox Engineering Systems, and its interest in some of its spin-off companies including ContentGuard and Inxight.
To save even more cash, the company also plans to cut about $600 million in sales and general administrative costs and a "significant" number of jobs. In March, Xerox cut 5,200 jobs, or about 5 percent of its work force.
"Significant" job cuts expected
"We have not put a number on it, but there are obviously a significant amount of people involved," Allaire said. "We regret that. But these are difficult times and we have to make difficult decisions but we will emerge stronger for it."
Investors aren't so sure. Shares of Xerox (XRX: Research, Estimates) fell 19 cents to $8.94 in mid-afternoon trade, less than $3 away from their 52-week low of $6.75. Xerox's 5.5 percent notes due in 2003 were quoted at about 73 cents on the dollar. Xerox's results mark the fourth quarter in the past five that the company has reported a shortfall.
 In a conference call, President Anne Mulcahy said Xerox does not plan to reverse its fortunes in the fourth quarter as it carries out its strategy. "However, we are planning a turnaround in 2001, with a return to growth and profitability and reduction in working capital," she said.
"I think they're doing the right thing, but they still have a long way to go to get back on track," said Gibboney Huske, an analyst with CS First Boston. "They have a plan that makes sense, and will probably get them where they need to go, but obviously it's still early in the process, and there remains a lot of risk," she said. She is maintaining her "hold" rating on the stock.
In May, former Chief Executive Rick Thoman stepped down after less than a year at the helm. Thoman was the target of investors' ire, who blamed him for bungling the company's transition to digital technology. 
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Xerox
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