STAMFORD, Conn.--July 28, 2003-- Xerox Corporation reported today second-quarter earnings of 9 cents per share including a 5 cent previously announced charge for the remaining unamortized fees associated with its terminated 2002 credit facility. Excluding this non-cash charge, the company's results exceeded expectations due to continued equipment sales improvements and disciplined cost management.
"Equipment sales growth is a leading indicator of the company's strong presence in the marketplace and a driver for future post-sale revenue," said Anne M. Mulcahy, Xerox chairman and chief executive officer. "That's why Xerox has remained focused on building and refreshing its product line with competitive offerings in the growing digital and color markets. These investments are clearly paying off."
Equipment sales grew 8 percent in the second quarter including a 7 percentage point currency benefit. Total revenue for the second quarter was $3.9 billion, a decline of 1 percent from the second quarter of 2002 including a 6 percentage point currency benefit. The decrease is primarily driven by declining post-sale revenue from both the company's older light lens technology as well as moderating declines in its developing markets business. Xerox noted that improving trends in its developing markets operations continue, with DMO equipment sales growing 39 percent year over year.
"Total revenue from the company's targeted growth areas - office digital, production digital and value-added services - grew 10 percent in the quarter and now represents about 70 percent of the company's revenue," added Mulcahy. "These results are directly aligned with our growth strategy. We're transforming Xerox into the industry's leading digital player with black-and-white and color digital systems that are integrated with a robust portfolio of services, delivering productivity improvements for our customers through lower cost, higher quality document management."
As more businesses small to large recognize the advantages of adding color to their documents, Xerox continues to yield strong revenue results from its technology in the production color and office color markets. Total color revenue was up 19 percent in the second quarter largely due to the success of Xerox's DocuColor series.
The company also said that second-quarter equipment installation rates grew in key growth markets, evidence of the strong momentum from the 26 new products launched in the past 18 months. For example, production color installs grew 7 percent in the second quarter led by increased demand for the Xerox DocuColor 6060 Digital Color Press.
In the office, color multifunction installs increased 64 percent and black-and-white multifunction grew 8 percent primarily driven by sales of the Xerox Document Centre 500 Series announced last year. The company is also seeing the initial benefits from its new and enhanced office products launched in the second quarter. The new suite of CopyCentre, WorkCentre, and WorkCentre Pro offerings has speeds ranging from 16 to 90 pages per minute and prices starting as low as $899, reflecting the most competitive pricing for the office in Xerox's history.
Gross margins of 42.4 percent continue to reflect operational efficiencies. Selling, administrative and general costs declined 2 percent including an adverse impact from currency of 4 percentage points.
Xerox reported second-quarter operating cash flow of $682 million and its worldwide cash position was $2.3 billion as of June 30. Debt decreased $2.5 billion in the quarter due to the company's successful completion last month of its $3.6 billion recapitalization plan. The recapitalization included $1.34 billion of new equity, $1.25 billion of senior unsecured notes, and a new $1 billion credit facility.
"From significantly strengthening our balance sheet to driving revenue improvement in key businesses, Xerox is delivering on all fronts," said Mulcahy. "Despite economic uncertainty, we are well positioned to compete aggressively and continue strengthening our business through improved year-over-year equipment sale trends and increased revenue in important growth markets, yielding strong results for the full year."
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