Restructuring at Xerox

 

Contents:

·Xerox in Trouble

·Xerox looks for help in fixing its balance sheet

·Xerox cuts costs

·Xerox Dips Into $7B Backstop Facility 

·The liquidity crunch at Xerox forces a sale of crown jewels

• Xerox Corporation's Mix of Long Term Debt

Xerox in Trouble

STAMFORD, Conn.--(BUSINESS WIRE)--Jan. 29, 2001 

Xerox Corporation (NYSE: XRX) today reported a fourth quarter loss of 31 cents per share, excluding an 18-cent gain on the sale of its China operations and additional net restructuring provisions of 6 cents. The company also said its turnaround plans, including asset sales, cost reductions and plans to exit the financing business, are on track. 

"Xerox strengthened its cash position in the fourth quarter and ended the year with more than $1.7 billion in cash. Operational improvements contributed to a reduction of more than $400 million in inventory in the quarter," said Paul A. Allaire, Xerox chairman and chief executive officer. "Our prime objective of cash generation is being realized." Turnaround Update Xerox concluded 2000 by closing on the $550 million cash sale of its China operations to Fuji Xerox. Earlier this month Xerox secured $435 million in financing from GE Capital and confirmed that it is negotiating with GE Capital to provide equipment financing for Xerox customers in several European countries. 

In addition to asset disposition initiatives, Xerox is making significant progress with its cost-reduction activities. 

"We are aggressively implementing our cost-reduction plans, which will yield more than $1 billion in savings by the end of 2001," said Anne M. Mulcahy, Xerox president and chief operating officer. "Since the third quarter of 2000, we have taken actions that account for more than one-third of this target, including the reduction of approximately 2,000 jobs worldwide in the fourth quarter. This activity will intensify with the reduction of 4,000 jobs in the first quarter and additional reductions through the balance of the year." 

Fourth Quarter Update 

Fourth quarter revenue was $4.8 billion, 13 percent lower than the fourth quarter of 1999. Pre-currency revenue declined 9 percent. Equipment sales in the fourth quarter accelerated 24 percent from the third quarter but fell short of historical levels due to a combination of competitive pressures, unfavorable market conditions and sales productivity issues. Operating margin declined reflecting weak high-end, black-and-white equipment sales, temporary pricing actions to reduce inventory on certain products, increased provisions and unfavorable transaction currency. Color revenue grew 54 percent in the fourth quarter, including the Tektronix color printer division. Installs of the DocuColor 2000 family totaled 1,900 units for the year, exceeding original projections by more than 25 percent. Revenue from Xerox's full-line of color products represented 17 percent of fourth quarter revenues, up from 10 percent in the fourth quarter last year. 

Xerox also reported that its recurring document outsourcing revenues grew 20 percent for the fourth quarter. The company increased research and development spending 11 percent in the quarter largely to fuel development of solutions and production color, including its innovative "FutureColor" technology, which is scheduled for customer engagement later in the year. 

"In absolute terms, our fourth quarter revenue grew 7 percent from the third quarter. Many of our products and services, particularly color and outsourcing, lead the industry and our improved liquidity will over time strengthen customer confidence and provide the financial and operational stability upon which we intend to rebuild our business," said Mulcahy. 

Looking forward, Allaire said: "We are executing every element of our turnaround plan to yield the fundamental changes in our business that will deliver long-term benefits. We are confident in Xerox's turnaround in 2001, continuing to generate cash, and returning the company to profitability in the second half and for the full year."

Xerox looks for help in fixing its balance sheet

New York Times , v CL, n 51,629, p C4

January 10, 2001

ABSTRACT:

Xerox Corporation (Stamford, CT), facing the prospect of an economic downturn, has taken on private investment banking firm the Blackstone Group to advise it on how it can fix its balance sheet. According to Xerox spokesman William A McKee, Blackstone's hiring was among a number of financial advisors hired by Xerox who are to advise the firm on its turnaround plan, and not, as had been reported in the New York Post, to advise the firm on filing for bankruptcy. Blackstone spokesman John A Ford said that his firm was to advise Xerox on its liquidity situation and on cash flow management. Although Xerox has $1.4 bil in cash on hand, the firm also has $2.7 bil in debt that is to fall due in 2001. According to an analyst that follows Xerox, another $1.9 bil will fall due in 2002. Xerox has already cut the number of manufacturing jobs it has in Rochester, NY by 400, with another 800 to be cut in 2001. In addition to promising it will cut $1 bil in costs, the firm has also said that it will raise $2 bil to $4 bil by selling-off its assets. The article contains additional information on Xerox's move to restore its financial health.

Xerox cuts costs

Xerox reports loss and plan to eliminate 4,000 jobs.(fourth-quarter results)(Company Financial Information) 

Gilpin, Kenneth N. 

The New York Times , p C7(N) pC7(L) 

Jan 30 , 2001 

Xerox Corp. announced a loss of $198 million during its fourth quarter. 

During the same period last year, the company announced profits of $294 million. The company's executives still believe the firm is on track in its turnaround. The company plans layoffs of 4,000 in an attempt to cut costs and also plans an asset sale, hoping to raise $2-4 billion.

Xerox Dips Into $7B Backstop Facility 

Karen Sibayan 

Asset Sales Report 

October 30,2000

Publisher: SECURITIES DATA PUBLISHING 

At the same time as it announced a $128 million loss in third quarter 

earnings, troubled business machines manufacturer Xerox Corp. said last 

week that it has borrowed $4.8 billion, roughly two-thirds, from its $7 

billion back stop credit facility. 

After failing to issue commercial paper, Xerox had announced in a filing 

with the Securities and Exchange Commission that it would draw upon the 

facility. But while it is no secret that Xerox is in trouble, the company's 

move harks back to 1998, sources said, a time when the universe of higher 

rated companies, not including Xerox, though, came under scrutiny from 

banks for drawing upon backstop credit facilities that they had in place. 

These companies - and Xerox was one of them - had no problems in 

negotiating aggressively priced, covenant-light credit lines, which were 

cheaper to draw on than issuing commercial paper. The ensuing rise in drawn 

backstops caused a crunch in the commercial paper market. 

And now Xerox has sounded the warning bell again. Indeed, should other 

companies like Xerox draw on their facilities as well, there could be 

repercussions on the market. 

"This is not happening in a vacuum," said Chris Donnelly, a director at 

S&P Portfolio Management Data. 

Following the 1998 commercial paper crunch, banks began to raise the 

utilization fees for backstop credit facilities. In the current market 

environment, where there has been a sharp decrease in the number of 

commercial banks in the lending business and credit is already scarce, the 

same thing could happen. "We're going to see those utilization fees take on 

some kind of teeth," Donnelly said. 

Although Xerox would likely be able to avail of its credit facility 

without a problem, such a large company drawing upon a significant sum of 

money is not something that banks would be thrilled about. 

Historically, banks have tended to underprice backup facilities in order 

to get other business from the firms they extend the liquidity to, said Dan 

Gates, senior credit officer at Moody's Investors Service. Backup lines of 

credit are typically intended for that purpose alone, and banks do not 

price them to adequately compensate companies when they actually draw upon 

them, he said. 

But there is another reason why banks are likely to put their guards up. 

Because Xerox is a fairly high profile company, and $4.8 billion is no 

small sum, lenders are sure to become more wary of the investment grade 

sector, another rating agency source said, particularly in the current 

market, where the fear of corporate default is strong. 

"The Xerox case would probably make banks revisit their portfolios on an 

individual credit basis, perhaps look into their triple-B credits a little 

bit more and scrutinize companies that have the potential to experience 

deterioration in credit quality," he said. 

Bank One, formerly known as First Chicago Bank, Chase Manhattan, Citibank 

and J.P. Morgan arranged the Xerox facility, which is due to mature on Oct. 

22, 2002. 

Other lenders on the deal include CIBC, Den Danske Bank, HSBC, Sumitomo 

Bank, ABN Amro, Bank of Tokyo Mitsubishi, Barclays, Deutsche Bank, 

FleetBoston, PNC Bank and Royal Bank of Canada.

The liquidity crunch at Xerox forces a sale of crown jewels

Lex: Xerox

Published: January 29 2001 21:47GMT | Last Updated:

January 29 2001 21:49GMT

Xerox is digging itself out of a hole, but it is a painful business: 6,000 jobs will have gone by April and more will follow. Fourth quarter losses were just under $200m, marginally worse than the consensus forecast. But, after similar losses in the first quarter, the company expects to restore profitability for the year as a whole. And, after revenues dropped sharply in the fourth quarter, the company is planning on the basis of zero-growth.

Given the depth of the problem, what matters most is liquidity position. The bank facility has been exhausted, and there is little prospect of capital markets opening again. Meeting debt repayments of about $2.7bn this year relies on cost cutting and asset disposals. Those job losses and operational improvements mean that Xerox is already a long way toward meeting its $1bn cost reduction target this year.

Finalising the sale of a 25 per cent stake in Fuji Xerox to Fuji Photo Film would provide a boost, and should raise $1.3bn-$1.5bn, according to Salomon Smith Barney. Following the sale of the China operations - and with negotiations with GE Capital on equipment financing continuing - that would put the $2-4bn asset disposals programme on track.

Yet looking beyond the liquidity crunch, to the extent that is possible, the outlook remains bleak. High-end colour printing offsets the gloom in the core black and white business, but competition there is set to intensify. Bondholders may rest a little easier. For shareholders, the chink of light is the hope of a takeover, once the worst is behind.

Xerox Corporation's Mix of Long Term Debt

From the SEC

Long Term Debt: 

1. Long Term Debt

Dec. 31, 1999, $15,001,000,000 (including current portion of

$3,957,000,000) comprised of:

Weighted Average 1999

Interest Rates

U.S. Operations

Xerox Corporation

Guaranteed ESOP notes 7.60% $ 299

due 1999-2003

Notes due 2000 6.24 2,041

Notes due 2001 6.67 721

Notes due 2002 7.90 230

Notes due 2003 5.60 1,398

Notes due 2004 4.95 502

Notes due 2016 7.20 250

Convertible notes due 3.63 601

2018

Notes due 2038 5.96 25

Other debt due 6.91 120

1999-2018

Subtotal 6,187

Xerox Credit Corporation 

Notes due 2000 5.47 2,026

Notes due 2001 6.21 401

Notes due 2002 2.20 668

Notes due 2003 6.10 200

Floating rate notes 5.19 60

due 2048

Subtotal 3,355

Total U.S. operations $9,542 

InternationalOperations 

Various Obligations

payable in:

Canadian Dollars due 11.46% $ 88

1999-2007

Dutch Guilders due 4.67 9

1999-2001

French Francs due 4.60 133

1999-2004

Pounds Sterling due 8.75 202

1999-2003

Euros due 2000-2004 6.41 195

U.S. Dollars due 6.02 2,995

1999-2008

Other currencies due 6.93 7

1999-2000

Capital lease 5.93 3

obligations

Total International 3,632 

Other borrowings 1,827

deemed long-term

Subtotal 15,001 

Less current 3,957

maturities

Total Long Term debt $11,044 

Line of Credit: Co. maintains a $7 billion revolving credit agreement

with a group of banks, which matures in 2002. This revolver is also

accessible by the following wholly owned subsidiaries: Xerox Credit

Corporation (up to a $7 billion limit) and Xerox Capital (Europe) plc

(up to a $4 billion limit) with Co.'s guarantee. Any amounts borrowed

under this facility would be at rates based, at the borrower's option,

on spreads above certain reference rates such as LIBOR. This agreement

is unused and is available to back commercial paper borrowings of Co.'s