Update: Xerox Sets Restructuring as It Posts Larger-Than-Estimated Loss

Updated from 8:12 a.m. EDT

Struggling copier company Xerox (XRX) announced an aggressive restructuring plan Tuesday that includes slashing $1 billion in costs -- mainly through job cuts -- and raising up to four times that amount through asset sales.

In the same announcement, the company reported a third-quarter loss of 20 cents, a penny more than the already lowered analyst consensus from First Call/Thomson Financial of a loss of 19 cents.

On Oct. 2 the company put out an announcement that it would lose between 15 cents and 20 cents a share, compared with the previous expectation of a 12-cent-per-share profit. The company attributed the shortfall to weaker-than-expected revenue in North America and Europe.

In subsequent announcements the company lowered its dividend by 75 cents to 5 cents a share and, most recently, was forced to issue a terse statement denying it's close to filing for bankruptcy protection in Europe.

Xerox revealed Tuesday that it is in discussions to sell a range of assets that includes the company's China operations, a portion of its stake in Fuji Xerox, Xerox Engineering Systems, and its interests in companies ContentGuard and Inxight. It hopes to raise between $2 billion and $4 billion from the asset sales.

The news, which was widely anticipated, failed to boost Xerox shares, as many analysts had expected. The restructuring plan fell short of expectations because it was too vague and did not include selling off its financing division, which accounts for between $7 billion and $8 billion of Xerox's $11 billion in debt, one analyst said.

"I don't think it was what the market was looking for," said James Corridore, who researches the company for Standard & Poors Equity Group. "It had nothing concrete. It's all still in the 'what if' stage." Corridore has an avoid rating on Xerox, and his firm does not perform underwriting.

Xerox finished down 31 cents, or 3%, at $8.81. Shares have traded as low as $6.75 and as high as $30.50 over the last 52 weeks.

Xerox did not give a specific timetable for when it plans to finalize the asset sales, only that it would notify the investment community in the coming months.

Xerox also said it was talking with several investors about making a significant equity investment in its inkjet business and was exploring a joint venture for its Palo Alto Research Center.

"Xerox's famous Palo Alto Research Center could have several technologies of value to venture capital firms, but it is very difficult to discern what exactly is there -- and what exactly is marketable," said PaineWebber analyst Benjamin Reitzes, in a report published Monday anticipating Xerox's restructuring plan. In the report, Reitzes -- who has a neutral rating on the company -- suggested the company whittle down its $1 billion a year research and development budget as part of the cost-cutting effort.

The company also plans to save about $1 billion in 2001, mainly by cutting an undisclosed amount of jobs and by outsourcing some of its manufacturing.

As part of the restructuring plan, the company will shuffle its sales force, putting more effort on selling its machines through distributors and emphasizing its high-end machines for publishers.

"The combination of all of these actions -- the previously announced dividend reduction, the focus on operational cash, the asset dispositions and financing options -- will significantly strengthen the balance sheet, and reduce our debt level," said Paul Allaire, Xerox's chairman and chief executive, in a statement. "This will sharpen our competitive edge, deliver the superior products and services that our customers require, and generate the value that our credit providers and shareholders require."

Tuesday's announcement is not new territory for the company, noted the PaineWebber research report. In 1998, the company restructured with a $1.6 billion charge that resulted in about 10,700 job cuts. And in March 2000, the company took a $625 million pretax charge, and it is expected that 5,200 jobs will be eliminated by mid-2001, a process that Xerox said Tuesday will be sped up.

Third-quarter revenue for Xerox was $4.46 billion, down 4% from revenue of $4.63 billion in the year-ago period. Including a $55 million charge related to its Mexico business, the company posted a third-quarter net loss of $167 million. This compares with net income of $339 million in last year's third quarter.

The Stamford, Conn.-based company attributed the weak financial results to lower-than-expected equipment sales in North America, and particularly for its high-end products.

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