Xerox Posts Net Loss Under Old Accounting
By Franklin Paul
NEW YORK (Reuters) - Xerox Corp. (NYSE:XRX - news) on Wednesday posted a first-quarter net loss versus a year-ago profit and an 11 percent drop in revenues -- unaudited results that are subject to change under an agreement with federal regulators.
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Three weeks ago, the Securities and Exchange Commission charged Xerox, known for its printers and photocopiers, with using accounting tricks to distort financial results from 1997 through 2000. Xerox agreed to pay a $10 million penalty, restate its results, and did not admit or deny any wrongdoing.
Xerox, also struggling to turn a profit as it faces tough competition and a slowdown in corporate spending, said its net loss was $64 million, or 9 cents a share. For the same period in 2001, Xerox had net income of $202 million, or 25 cents.
Excluding costs from a restructuring and other special items, Xerox posted a profit of $53 million, or 7 cents per share. Analysts expected, on average, a loss of 1 cent per share, with the range from a loss of 3 cents to profit of 3 cents, according to Wall Street tracking firm Thomson Financial/First Call.
Revenues, after currency translations, fell to $3.7 billion from $4.2 billion in 2001. Analysts, on average, forecast about $3.75 billion, according to research firm Multex.
Credit Suisse First Boston analyst Gibboney Huske said revenues were ``still facing challenges. They need to get the top line going again because you can't cut costs forever.''
Xerox trimmed global staffing by 4,300 to 74,600 in the quarter, and cut inventories by $490 million, or 28 percent, from a year ago. Xerox said cost cuts in the quarter will lead to savings of more than $100 million annually.
Merrill Lynch analyst Shannon Cross said ``the cost cutting and operational improvements should make the banks feel more comfortable.''
Chairman and Chief Executive Anne Mulcahy said on a conference call that ``a lot of operations'' were not affected by the restatement, adding that the company is making ``operational progress.''
Cross said Xerox's business was ``stable,'' but added ``it has definitely been hit by the economy.''
ANXIOUS ABOUT DEBT
Analysts and investors were watching Xerox's debt status. It faces an Oct. 22 deadline as it negotiates with 57 banks over a revolving credit agreement of more than $7 billion. If talks fail, the banks could declare a default and move to recover funds.
Xerox said it expects to complete a refinancing by June.
``The banks clearly want us to pay down a portion of the revolver, they want to renegotiate the balance and extend the term at higher interest rates,'' Mulcahy told Reuters in an interview. ``So all of the rationale for the banks to conclude this negotiation is really quite positive,'' Mulcahy said.
The Stamford, Connecticut-based company said it had about $4.7 billion in worldwide cash at the end of March after repaying $550 million in first-quarter maturing debt. The company said that debt after cash was $12.3 billion, 17 percent less than a year ago.
Xerox said the restatement of results will include adjustments in the timing and allocation of lease revenues, which will be reallocated among equipment, service, supplies and finance revenue streams. It will use a different methodology than the one used from 1997 through 2000 and criticized by regulators.
Xerox has until June 30 to file its 2001 annual report and adjust first-quarter 2002 fiscal figures, using the new accounting methodologies.
Shares of Xerox closed up 18 cents, or 1.89 percent, at $9.72 in Wednesday trading on the New York Stock Exchange. Since the start of the year, the stock has fallen about 11 percent, and underperformed the S&P 500, which has slipped