COMPANY PRESS RELEASE: After a year of taking aggressive actions to restore the company’s financial strength and improve performance, Xerox Corporation has reported a return to operational profitability with fourth-quarter results that exceed expectations. The company announced fourth-quarter earnings of 15 cents per share, excluding restructuring charges and the effects of unhedged currency.
Including restructuring charges of 19 cents as well as a 6-cent gain from foreign currency and a 3-cent loss from the Argentina devaluation, Xerox reported a fourth-quarter net loss of 1 cent per share.
Today’s results are all about execution – the precise execution of a turnaround strategy that has significantly strengthened Xerox’s core operations while effectively positioning the company to exploit future market opportunities in its production, office and services businesses, said Anne M. Mulcahy, Xerox chairman and chief executive officer. With the clear objective of creating a leaner, faster, and more flexible enterprise, we made the difficult but necessary decisions this past year to exit certain businesses, outsource some internal functions and dramatically reduce our cost base. The benefits of these actions resulted in the strong performance delivered in the fourth quarter including increased gross margins; lower selling, administrative and general expenses; reduction of inventory to historically low levels; and improved receivables. The outcome is a return to operational profitability, representative of the new Xerox that is emerging from our successful turnaround.
Xerox delivered gross margins of 38.3 percent, a 3.2 percentage point year-over-year increase. Selling, administrative and general expenses were down 25 percent and improved 4.5 percentage points to 27.7 percent of revenue. Continuing progress in inventory reductions resulted in a $600 million or 30-percent decrease for the year, including a $200 million reduction from third-quarter 2001.
Fourth-quarter Days Sales Outstanding, an important measure of how quickly Xerox collects cash from its customers, was at its best level in more than two years. DSO improved by three days from fourth-quarter 2000 and by six days from the third quarter of 2001.
As previously reported, Xerox continues to enhance its liquidity. The company’s current cash position has increased to $4.5 billion including $746 million received earlier this month from the sale of Senior Notes and following the repayment of $200 million in first-quarter 2002 debt. Net debt for the fourth quarter was down $4.1 billion from Dec. 31, 2000, a 25-percent reduction.
Xerox’s strengthened financial position is an important factor in our active negotiations with the bank group to refinance a portion of the revolver and to extend its maturity, said Mulcahy in reference to the company’s $7 billion revolving line of credit.
Xerox reported fourth-quarter revenue of $4.3 billion, 13 percent lower than fourth-quarter 2000, including a 26-percent revenue decline in its developing markets operations.
Weakened economic conditions continue to impact revenue, especially in high-end and color products. Yet, the decline also reflects our strategic decision to pursue profitable growth opportunities versus sales that expand market share but weaken the bottom line, said Mulcahy. These efforts are paying off. North America delivered another quarter of increased profits and our European business turned the corner, posting a profit in the fourth quarter.
Xerox also made additional progress in reducing its cost base in the fourth quarter. By the end of 2001, the company had implemented actions that account for $1.1 billion in annualized savings. Employment declined 4,400 in the fourth quarter including the transfer of positions through the outsourcing of certain office manufacturing operations to Flextronics. Xerox’s year-end employment was 78,900, down 13,600 from the end of 2000.
During a year of aggressive cost reductions and restructuring, we remained focused on innovation by continuing research and development spending at 6 percent of revenue, a level that we intend to sustain in 2002, added Mulcahy. Our investments in the future growth of Xerox will accelerate this year with launches of five new platforms, the recent introduction of a new global advertising campaign, and the continued expansion of sales coverage through various channels. With these investments and a robust portfolio of products, services and solutions, we’re on solid ground to compete effectively in today’s demanding marketplace.
Commenting on expectations for the first quarter, Mulcahy said, The benefits of our turnaround actions along with additional cost reductions will continue to enhance our bottom line. This performance will be partially offset by seasonal first-quarter revenue declines. However, we are comfortable with the range of analysts’ expectations for first quarter, updated to reflect the increased interest expense related to the recent Senior Notes offering. And, we remain confident in our plan to return to full-year operational profitability in line with current expectations.
Full-Year 2001 Results
For the year, Xerox reported a 2001 net loss of 43 cents per share or $293 million. Revenues in 2001 were $16.5 billion, compared with $18.7 billion in 2000.