Xerox Reports Third-Quarter 2009 Earnings of 14 Cents per Share
http://www.businesswire.com/news/home/20091022005369/en
* Operating cash flow of $610 million, $1.2 billion cash balance
* 39.8 percent gross margin
* Revenue impacted by continued weakness in global economy
* Increasing guidance for full-year earnings and operating cash
NORWALK, Conn.--(Business Wire)--
Xerox Corporation (NYSE: XRX) announced today third-quarter 2009 results that
include earnings per share of 14 cents and $610 million in operating cash flow.
"Our third-quarter performance reflects our continued disciplined approach to
managing cash and reducing costs," said Ursula M. Burns, Xerox chief executive
officer. "As a result, we exceeded our expectations for earnings and operating
cash flow, and are benefiting from operational improvements that are mitigating
the economic challenges."
The company reported third-quarter total revenue of $3.7 billion, down 16
percent from third-quarter 2008 including a 2 point negative impact from
currency. Post-sale and financing revenue was down 11 percent, or 9 percent in
constant currency. Equipment sale revenue declined 29 percent, or 28 percent in
constant currency.
"Just as we are closely managing costs, our customers are doing the same and we
have not seen a meaningful shift towards increased spending on technology," she
added. "For many of our business clients - small to large - there remains a
hesitancy to invest until more economic factors show signs of steady
improvement. We expect this trend will continue to put pressure on revenue for
the balance of the year.
"At the same time, we`re winning new business from clients who want to reduce
their cost base through our industry-leading managed print services," said
Burns. "Scaling our services business has long been a strategic focus. The
growth opportunity is significant, customers are demanding more service-related
value, and the multi-year contracts provide profitable recurring revenue. These
factors give us confidence in the strategic and financial rationale for
acquiring Affiliated Computer Services. With this acquisition and the benefits
of our existing annuity-based business, we`ll deliver significant revenue
growth, cash and earnings expansion."
Third-quarter operating cash flow was $610 million. Through the third quarter,
the company has generated $1.2 billion in operating cash flow, and, as a result,
has increased its expectation for the full year to $1.7 billion. Xerox ended the
third quarter with a cash balance of $1.2 billion. Total debt was down $938
million through the first three quarters, and the company is on track to reduce
total debt by more than $1 billion this year.
Gross margin was 39.8 percent in the third quarter, an increase of over half a
point from the prior year. Third-quarter selling, administrative and general
expenses were down year over year by $131 million and SAG as a percent of
revenue was 27.4 percent.
Xerox expects fourth-quarter 2009 earnings per share in the range of 20 cents to
22 cents, excluding costs related to the acquisition of ACS. The company has
increased its full-year earnings expectations to 55 cents to 57 cents per share,
which excludes fourth-quarter ACS acquisition related costs. Prior guidance for
full-year 2009 was 50 cents to 55 cents per share.
This release 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. In addition, fourth-quarter and full-year 2009 EPS has been
provided without including fourth-quarter ACS acquisition related costs, which
cannot be specifically quantified at this time.
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 unprecedented
volatility in the global economy; 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 savings from restructuring actions;
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; the risk that
the future business operations of Affiliated Computer Services, Inc. ("ACS")
will not be successful; the risk that customer retention and revenue expansion
goals for the ACS transaction will not be met; the risk that disruptions from
the ACS transaction will harm relationships with customers, employees and
suppliers; 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 Report on Form 10-Q for the quarters ended March 31, 2009 and June 30,
2009 and our 2008 Annual Report on Form 10-K 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.
Xerox and ACS urge investors and security holders to read the joint proxy
statement/prospectus regarding the proposed transaction when it becomes
available because it will contain important information. You may obtain a free
copy of the joint proxy statement/prospectus, as well as other filings
containing information about Xerox and ACS, without charge, at the Securities
and Exchange Commission's (SEC) Internet site (http://www.sec.gov). Copies of
the joint proxy statement/prospectus and the filings with the SEC that will be
incorporated by reference in the joint proxy statement/prospectus can also be
obtained, when available, without charge, from Xerox`s website,
http://www.xerox.com, under the heading "Investor Relations" and then under the
heading "SEC Filings". You may also obtain these documents, without charge, from
ACS`s website, http://www.acs-inc.com, under the tab "Investor Relations" and
then under the heading "SEC Filings". Information regarding participants or
persons who may be deemed to be participants in the solicitation of proxies in
respect of the proposed transaction is contained in Xerox's proxy statement for
its most recent annual meeting and ACS's proxy statement for its most recent
annual meeting, both as filed with the SEC.
For more information on Xerox, visit http://www.xerox.com or
http://www.xerox.com/news. For open commentary, industry perspectives and views
from events visit http://twitter.com/xeroxcorp, http://twitter.com/xeroxevents,
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http://www.xerox.com/podcasts or http://www.xerox.com/thoughtleaders.
Xerox, and the sphere of connectivity design are trademarks of Xerox Corporation
in the United States and/or other countries.
Xerox Corporation
Condensed Consolidated Statements of Income (Unaudited)(1)
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions, except per-share data) 2009 2008 % Change 2009 2008 % Change
Revenues
Sales $ 1,555 $ 2,047 (24 %) $ 4,651 $ 6,179 (25 %)
Service, outsourcing and rentals 1,942 2,126 (9 %) 5,773 6,446 (10 %)
Finance income 178 197 (10 %) 536 613 (13 %)
Total Revenues 3,675 4,370 (16 %) 10,960 13,238 (17 %)
Costs and Expenses
Cost of sales 1,031 1,340 (23 %) 3,100 4,059 (24 %)
Cost of service, outsourcing and rentals 1,113 1,241 (10 %) 3,313 3,747 (12 %)
Equipment financing interest 67 75 (11 %) 204 234 (13 %)
Research, development and engineering expenses 209 228 (8 %) 615 672 (8 %)
Selling, administrative and general expenses 1,007 1,138 (12 %) 3,024 3,432 (12 %)
Restructuring and asset impairment charges (2 ) 14 * (5 ) 80 *
Other expenses, net 92 87 6 % 276 1,022 (73 %)
Total Costs and Expenses 3,517 4,123 (15 %) 10,527 13,246 (21 %)
Income (Loss) before Income Taxes & Equity Income(2) 158 247 (36 %) 433 (8 ) *
Income tax expense (benefit) 44 15 * 122 (172 ) *
Equity in net income of unconsolidated affiliates 15 35 (57 %) 14 92 (85 %)
Net Income 129 267 (52 %) 325 256 27 %
Less: Net income attributable to noncontrolling interests 6 9 (33 %) 20 27 (26 %)
Net Income Attributable to Xerox $ 123 $ 258 (52 %) $ 305 $ 229 33 %
Basic Earnings per Share $ 0.14 $ 0.30 (53 %) $ 0.35 $ 0.26 35 %
Diluted Earnings per Share $ 0.14 $ 0.29 (52 %) $ 0.35 $ 0.25 40 %
* Percent change not meaningful.
(1) See "Accounting Changes" section for discussion of change in presentation of Noncontrolling Interests.
(2) Referred to as "Pre-Tax Income" throughout the remainder of this document.
Xerox Corporation
Condensed Consolidated Balance Sheets (Unaudited)(1)
September 30, December 31,
(in millions, except share data in thousands) 2009 2008
Assets
Cash and cash equivalents $ 1,159 $ 1,229
Accounts receivable, net 1,863 2,184
Billed portion of finance receivables, net 256 254
Finance receivables, net 2,386 2,461
Inventories 1,069 1,232
Other current assets 707 790
Total current assets 7,440 8,150
Finance receivables due after one year, net 4,381 4,563
Equipment on operating leases, net 550 594
Land, buildings and equipment, net 1,351 1,419
Investments in affiliates, at equity 1,051 1,080
Intangible assets, net 609 610
Goodwill 3,405 3,182
Deferred tax assets, long-term 1,673 1,692
Other long-term assets 1,293 1,157
Total Assets $ 21,753 $ 22,447
Liabilities and Equity
Short-term debt and current portion of long-term debt $ 1,149 $ 1,610
Accounts payable 1,292 1,446
Accrued compensation and benefits costs 616 625
Other current liabilities 1,373 1,769
Total current liabilities 4,430 5,450
Long-term debt 6,297 6,774
Liability to subsidiary trust issuing preferred securities 649 648
Pension and other benefit liabilities 1,870 1,747
Post-retirement medical benefits 873 896
Other long-term liabilities 603 574
Total Liabilities 14,722 16,089
Common stock 870 866
Additional paid-in-capital 2,463 2,447
Retained earnings 5,532 5,341
Accumulated other comprehensive loss (1,967 ) (2,416 )
Xerox Shareholders' Equity 6,898 6,238
Noncontrolling interests 133 120
Total Equity 7,031 6,358
Total Liabilities and Equity $ 21,753 $ 22,447
Shares of common stock issued and outstanding 869,245 864,777
(1) See "Accounting Changes" section for a discussion of the change in presentation of noncontrolling interests.
Xerox Corporation
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(in millions) 2009 2008 2009 2008
Cash Flows from Operating Activities:
Net income $ 129 $ 267 $ 325 $ 256
Adjustments required to reconcile net income to cash flows from operating activities:
Depreciation and amortization 176 175 513 498
Provision for receivables 61 49 207 114
Provision for inventory 15 16 44 59
Net gain on sales of businesses and assets (6 ) - (15 ) (22 )
Undistributed equity in net income of unconsolidated affiliates (12 ) (31 ) (6 ) (60 )
Stock-based compensation 23 26 54 66
Provision for litigation, net - - - 795
Payments for securities litigation, net - - (28 ) -
Restructuring and asset impairment charges (2 ) 14 (5 ) 80
Payments for restructurings (66 ) (33 ) (231 ) (92 )
Contributions to pension benefit plans (38 ) (205 ) (97 ) (271 )
Decrease (increase) in accounts receivable and billed portion of finance receivables 5 (60 ) 310 (128 )
Decrease (increase) in inventories 77 (10 ) 159 (175 )
Increase in equipment on operating leases (58 ) (81 ) (185 ) (242 )
Decrease in finance receivables 116 99 347 319
Decrease in other current and long-term assets 17 24 61 18
Increase (decrease) in accounts payable and accrued compensation 138 94 (135 ) (49 )
Increase (decrease) in other current and long-term liabilities 9 (85 ) (129 ) (132 )
Net change in income tax assets and liabilities 26 (15 ) 60 (302 )
Net change in derivative assets and liabilities 22 (1 ) (46 ) 9
Other operating, net (22 ) 17 38 13
Net cash provided by operating activities 610 260 1,241 754
Cash Flows from Investing Activities:
Cost of additions to land, buildings and equipment (21 ) (43 ) (69 ) (142 )
Proceeds from sales of land, buildings and equipment 7 1 16 37
Cost of additions to internal use software (19 ) (42 ) (75 ) (102 )
Acquisitions, net of cash acquired - (11 ) (145 ) (153 )
Net change in escrow and other restricted investments 1 (266 ) (2 ) (403 )
Other investing, net 1 5 1 57
Net cash used in investing activities (31 ) (356 ) (274 ) (706 )
Cash Flows from Financing Activities:
Net payments on secured financings (10 ) (45 ) (50 ) (192 )
Net (payments) proceeds on other debt (605 ) 329 (871 ) 900
Common stock dividends (37 ) (37 ) (112 ) (116 )
Payments to acquire treasury stock, including fees - (92 ) - (804 )
Repurchases related to stock-based compensation - - (11 ) (33 )
Other financing, net (2 ) (2 ) (10 ) (6 )
Net cash (used in) provided by financing activities (654 ) 153 (1,054 ) (251 )
Effect of exchange rate changes on cash and cash equivalents 13 (27 ) 17 (23 )
(Decrease) increase in cash and cash equivalents (62 ) 30 (70 ) (226 )
Cash and cash equivalents at beginning of period 1,221 843 1,229 1,099
Cash and cash equivalents at end of period $ 1,159 $ 873 $ 1,159 $ 873
Financial Review
Summary
Revenues
Three Months Ended
September 30,
(in millions) 2009 2008 Change
Equipment sales $ 802 $ 1,125 (29 %)
Post sale revenue(1) 2,873 3,245 (11 %)
Total Revenue $ 3,675 $ 4,370 (16 %)
42,721 3,646
Total Liabilities 3,135,590 3,284,775
Total Stockholders' Equity 637,517 349,944
Total Liabilities and Stockholders' Equity $ 3,773,107 $ 3,634,719
Xerox Corporation
Carl Langsenkamp, +1-585-423-5782
carl.langsenkamp@xerox.com
Copyright Business Wire 2009
