Company has operating profit; CEO warns more cuts possible

By Richard Mullins
Democrat and Chronicle

(Tuesday, January 29, 2002) -- With a tough year of restructuring beginning to show results, Xerox Corp. executives say they're looking forward to introducing new products and new advertising in 2002.

But cost-cutting, reflected in Monday's improved fourth-quarter earnings report, will continue, said Chairman and Chief Executive Officer Anne M. Mulcahy.

"I think this one was an extraordinarily important quarter," Mulcahy said. "For the people in the company who poured their hearts into it and worked tirelessly to fix it -- a return to operating profit is just about the best outcome for our people."

Mulcahy, who took the title of chairman on Jan. 1, held a buoyant conference call with analysts Monday.

"In operations around the world, we delivered, and in most cases, exceeded expectations," she said.

Not including some one-time items, Xerox posted a profit of $108 million, or 15 cents per share, for the fourth quarter, which ended Dec. 31. Including restructuring costs, Xerox posted a $4 million loss or 1 cent per share loss from continuing operations. For the same period a year ago, Xerox had a $20 million or 25 cent per share loss.

Determining if Xerox beat forecasts of analysts is not so simple, said Ken Perkins, an analyst at Thomson Financial/First Call, which tracks financial figures from Wall Street.

"There are a number of different ways to look at this," Perkins said. "It's just a question of what to include and what not to. Provided a majority of analysts don't include this or that charge, this certainly appears to be an upside surprise."

Perkins said analysts could settle on a 1 cent per share loss, a 15 cent per share gain, or 18 cent per share gain, depending on interpretation.

Xerox typically has its busiest selling season during the last three months of the year. This time, fourth-quarter sales fell to $4.26 billion, down 13 percent from $4.88 billion a year earlier.

For the year, Xerox lost $293 million, compared with a loss of $257 million in 2000. Sales were $16.5 billion, 12 percent lower than in 2000 when the company generated $18.7 billion.

Mulcahy stressed that restructuring during 2001 had begun to show results quarter-to-quarter. For example:

• Xerox's choice to pursue more profitable sales meant shutting some businesses, but it also improved margins.
• Cutting employment by 13,600 workers worldwide left the company with 78,900 workers, including 11,500 in Monroe County. This and other cost-cutting helped reduce expenses by more than $1 billion. By April, Xerox plans to cut another 530 workers in Monroe County, and other cost-cutting measures will be reviewed.

"I've talked about the next billion dollars of opportunity, but we've not put that into a time frame," she said.

• New financing deals have increased Xerox's cash reserves to $4.5 billion and lowered debts.

Making a forecast, Mulcahy said she was "confident" the company would return to an operational profit for 2002.

It will be a big year for Xerox, with the introduction of a major advertising campaign, plus several new products and services.

Executives have laid out several key events for the year:

• By April, the contract with Xerox's largest union expires. The two sides are in negotiations. Some of Xerox's largest and most profitable machines are made by union workers at its Webster facility.
• Xerox plans to introduce a new line of office copiers, and in the fall, will begin shipments of iGen3, a high-speed digital printing press that resulted from Xerox's largest research investment in a decade.
• Mulcahy said she has interviewed several candidates for chief financial officer, a position open since Barry D. Romeril left at the end of last year.
• Analysts say 2002 could also bring a judgment from the Securities and Exchange Commission on at least two investigations into Xerox's accounting practices. Among the challenges: Xerox says it disagrees with the SEC over how to handle accounting for some equipment leases.