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Xerox Reports Fourth-Quarter 2008 Results
Posted by: gurufocus (IP Logged)
Date: January 23, 2009 06:01AM

NORWALK, Conn.--(BUSINESS WIRE)--Xerox Corporation (NYSE: XRX) announced today fourth-quarter 2008 financial performance that, including previously disclosed restructuring charges, resulted in break-even earnings per Press Release: Xerox Reports Fourth-Quarter 2008 Results

NORWALK, Conn.--(BUSINESS WIRE)--Xerox Corporation (NYSE: XRX) announced today fourth-quarter 2008 financial performance that, including previously disclosed restructuring charges, resulted in break-even earnings per share and adjusted earnings per share of 30 cents. Adjustments include a restructuring charge of 27 cents per share as well as an equipment write-off of 3 cents per share.

The company’s full-year 2008 net income was $230 million, including a previously announced litigation charge. Excluding charges, adjusted net income was $985 million for the year. Total revenue was $17.6 billion, a 2 percent increase from full-year 2007. The company generated $939 million of operating cash flow. Adjusted core cash flow for the year was $1.7 billion.

“In the fourth quarter, the continued weakening economy and rapid shift in exchange rates put pressure on the business,” said Anne Mulcahy, chairman and chief executive officer. “Despite this challenging marketplace, we delivered $265 million in adjusted net income for the quarter and $985 million for the year.”

“We continue to prioritize cash and productivity to give us flexibility in this uncertain environment,” she added. “Our fourth-quarter restructuring will deliver $200 million in savings this year. And, last year we generated $1.7 billion in adjusted cash from core operations. We believe our strong balance sheet and disciplined approach to cost reductions strengthen our ability to effectively manage through these tough economic times.”

In the fourth quarter, Xerox generated $1 billion in adjusted cash from core operations, excluding net litigation payments of $615 million. The company closed the year with $1.2 billion in cash and cash equivalents.

Total revenue of $4.4 billion declined 10 percent in the quarter, including a 5 point negative impact from currency. Post-sale and financing revenue was down 8 percent or 3 percent in constant currency, largely due to distributors holding lower inventory levels. Equipment sale revenue declined 15 percent or 11 percent in constant currency, reflecting weakened economic conditions around the world.

Revenue from the company’s developing markets, which delivered 17 percent revenue growth through the third quarter of 2008, was down 14 percent in the fourth quarter largely due to the decline in developing markets exchange rates and the rapid weakening of Russian and eastern European economies.

Fourth-quarter revenue from color was down 6 percent or flat in constant currency. Color pages were up 23 percent and now represent 18 percent of total pages printed on Xerox technology. Color results exclude the benefit from Global Imaging Systems.

Xerox services help businesses simplify work processes, manage office technology and in-house print shops, digitize paper files, create digital archives and much more. During 2008, Xerox Global Services generated $3.5 billion in annuity revenue, a 3 percent increase over 2007.

“We remain confident that the value we bring to our customers can help them through this economy. Much of what we do is aimed squarely at helping our customers reduce costs and operate more efficiently and effectively. Our services business continues to grow and we’re prioritizing investments to build on this momentum in 2009,” added Mulcahy. “Discussions with customers about saving up to 30 percent on their document costs get attention. It’s a powerful value proposition in any economy.”

Xerox’s production business provides commercial printers and document-intensive industries with high-speed digital printing and services that enable on-demand, personalized printing. The weakening economy resulted in a 13 percent decline in total production revenue, including a 7 point negative impact from currency. Installs of production black-and-white systems declined 11 percent. Installs of production color devices were up 4 percent in the quarter driven by strong demand for the company’s new production systems, the Xerox iGen4Press and the Xerox 700 Digital Color Press, both of which were available worldwide beginning in September.

In Xerox’s office business, which provides the industry’s broadest portfolio of printers, copiers, and multifunction systems through a global network of sales channels, the number of installs of color multifunction systems was up 9 percent in the fourth quarter. Installs of the company’s black-and-white multifunction devices decreased 18 percent. Total office revenue was down 9 percent in the fourth quarter including a 4 point negative impact from currency.

Gross margin was 37.9 percent. Excluding the equipment write-off, adjusted gross margin was 38.8 percent, down 1.7 points from the fourth quarter of 2007. This decline was almost entirely due to increased product costs driven by the rapid strengthening of the Yen. Selling, administrative and general expenses were 25.2 percent of revenue, up about 1 point from fourth-quarter 2007.

Xerox expects first-quarter 2009 earnings in the range of 16 cents to 20 cents per share.

Note: This release refers to several non-GAAP financial measures described as “adjusted” - earnings per share, net income, gross margin and cash from core operations - that exclude the effects of certain fourth quarter and full year items. Additionally, it discusses revenue growth using a measure noted as “Constant Currency” that excludes the effects of currency translation. Refer to the “Non-GAAP Financial Measures” section of this release for a discussion of these non-GAAP measures and their reconciliation to the reported GAAP measure.

This release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “will,” “should” and similar expressions, as they relate to us, are intended to identify forward-looking statements. These statements reflect management’s current beliefs, assumptions and expectations and are subject to a number of factors that may cause actual results to differ materially. These factors include but are not limited to the risk that we will not realize all of the anticipated benefits from our 2007 acquisition of Global Imaging Systems, Inc; the risk that unexpected costs will be incurred; the outcome of litigation and regulatory proceedings to which we may be a party; actions of competitors; changes and developments affecting our industry; quarterly or cyclical variations in financial results; development of new products and services; interest rates and cost of borrowing; our ability to protect our intellectual property rights; our ability to maintain and improve cost efficiency of operations, including actions with respect to the fourth-quarter 2008 $240 million after-tax net restructuring and asset impairment charge; changes in foreign currency exchange rates; changes in economic conditions, political conditions, trade protection measures, licensing requirements and tax matters in the foreign countries in which we do business; reliance on third parties for manufacturing of products and provision of services; and other factors that are set forth in the “Risk Factors” section, the “Legal Proceedings” section, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section and other sections of our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008, June 30, 2008, September 30, 2008 and our 2007 Annual Report filed with the Securities and Exchange Commission. The Company assumes no obligation to update any forward-looking statements as a result of new information or future events or developments, except as required by law.

For more information on Xerox, visit [www.xerox.com] or :b515:http://www.xerox.com/news:/b515:. For open commentary and industry perspectives, visit [www.xerox.com] or :b515:http://www.xerox.com/podcasts:/b515:.

Xerox®, iGen4™, the Xerox wordmark and the spherical connection symbol are trademarks of Xerox Corporation in the United States and/or other countries.

           

Xerox Corporation

Condensed Consolidated Statements of Income (Unaudited)

 
Three Months Ended Year Ended
December 31, December 31,
(in millions, except per-share data) 2008   2007 % Change 2008   2007 % Change
 
Revenues
Sales $ 2,146 $ 2,479 (13 %) $ 8,325 $ 8,192 2 %
Service, outsourcing and rentals 2,039 2,195 (7 %) 8,485 8,214 3 %
Finance income   185     208 (11 %)   798     822   (3 %)
Total Revenues   4,370     4,882 (10 %)   17,608     17,228   2 %
 
Costs and Expenses
Cost of sales - excluding equipment write-off 1,421 1,568 (9 %) 5,480 5,254 4 %
Cost of sales - equipment write-off 39 - * 39 - *
Cost of service, outsourcing and rentals 1,182 1,258 (6 %) 4,929 4,707 5 %
Equipment financing interest 71 80 (11 %) 305 316 (3 %)
 
Cost of revenue - excluding equipment write-off 2,674 2,906 (8 %) 10,714 10,277 4 %
Equipment write-off   39     - *   39     -   *
Cost of revenue - total 2,713 2,906 (7 %) 10,753 10,277 5 %
Research, development and engineering expenses 212 238 (11 %) 884 912 (3 %)
Selling, administrative and general expenses 1,102 1,186 (7 %) 4,534 4,312 5 %
Restructuring and asset impairment charges 349 1 * 429 (6 ) *
Other expenses, net   73     81 (10 %)   1,122     295   *
Total Costs and Expenses   4,449     4,412 1 %   17,722     15,790   12 %
 
(Loss) Income before Income Taxes and Equity Income** (79 ) 470 * (114 ) 1,438 *
Income tax (benefits) expense (59 ) 125 * (231 ) 400 *
Equity in net income of unconsolidated affiliates   21     37 (43 %)   113     97   16 %
 
Net Income $ 1   $ 382 (100 %) $ 230   $ 1,135   (80 %)
 
Basic Earnings per Share $ - $ 0.41 (100 %) $ 0.26 $ 1.21 (79 %)
Diluted Earnings per Share $ - $ 0.41 (100 %) $ 0.26 $ 1.19 (78 %)
 

*Percent change not meaningful.

**Referred to as "Pre-Tax Income" throughout the remainder of this document.


Stocks Discussed: XRX,
 

Xerox Corporation

Condensed Consolidated Balance Sheets (Unaudited)

 
December 31, December 31,
(in millions, except share data in thousands)   2008 2007
Assets
Cash and cash equivalents $ 1,229 $ 1,099
Accounts receivable, net 2,184 2,457
Billed portion of finance receivables, net 254 304
Finance receivables, net 2,461 2,693
Inventories 1,232 1,305
Other current assets   790     682  
Total current assets 8,150 8,540
Finance receivables due after one year, net 4,563 5,051
Equipment on operating leases, net 594 587
Land, buildings and equipment, net 1,419 1,587
Investments in affiliates, at equity 1,080 932
Intangible assets, net 610 621
Goodwill 3,182 3,448
Deferred tax assets, long-term 1,692 1,349
Other long-term assets   1,157     1,428  
Total Assets $ 22,447   $ 23,543  
 
Liabilities and Shareholders' Equity
Short-term debt and current portion of long-term debt $ 1,610 $ 525
Accounts payable 1,446 1,367
Accrued compensation and benefits costs 625 673
Other current liabilities   1,769     1,512  
Total current liabilities 5,450 4,077
Long-term debt 6,774 6,939
Liability to subsidiary trust issuing preferred securities 648 632
Pension and other benefit liabilities 1,747 1,115
Post-retirement medical benefits 896 1,396
Other long-term liabilities   694     796  
Total Liabilities 16,209 14,955
Common stock, including additional paid-in-capital 3,313
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