Xerox Corporation Michael Herchel ACG2021 Section 008

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Xerox CorporationMichael HerchelACG2021 Section
008
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Executive Summary

• With the advent of the computer dot-com bust,
  Xerox was deep in the red. However, by exiting
  losing markets and selling unneeded assets, Xerox
  has returned to profitability from a 94 million
  dollar net loss to a 91 million dollar net income
  between the years of 2001 and 2002. Xeroxs gross
  margins have improved and its future is looking
  brighter.
• Xeroxs 2002 Annual Report can be found at
• http//a1851.g.akamaitech.net/f/1851/2996/24h/cach
  e.xerox.com/downloads/usa/en/i/ir_annualreport2002
  .pdf

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Part A. Introduction

• Chief Executive Officer
• Anne M. Mulcahy
• Location of home office
• 800 Long Ridge RoadStamford, CT 06904United
  States
• Ending date of latest fiscal year
• December 31, 2002
• Xerox provides document solutions for all types
  of business. Xerox's products include digital
  network printers and photocopiers, copy machines,
  scanners, fax machines, multipass multifunction
  printers, office supplies, document management
  software, business consulting and services.
• Xerox's main geographic centers of activity are
  the United States (with 62.5 of Total Revenue)
  and Europe (with 27.9 of Total Revenue).

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Part A. Audit Report

• Xeroxs independent auditor is PricewaterHouseCoop
  ers LLP,
• PricewaterHouseCoopers, LLP said that in their
  opinion the financial statements accurately
  represents the financial position of Xerox at
  December 31st, 2002 and 2001. The financial
  statements conform to the generally accepted
  accounting principles in the United States.
  Xerox's Financial Statements are the
  responsibility of Xerox's management, while
  PricewaterhouseCooper's responsibility is to
  audit and report on these statements.

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Part A. Stock Market Information

• The current stock price for XRX as of 2/25/2004
  is 13.93
• The twelve month trading range for Xeroxs Stock
  is 8.40 - 15.54
• Dividend per share 0.04
• Date of this information February 25th, 2004
• Your opinion about the company stock as an
  investment? HOLD

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Part B. Industry Situation and Company Plans

• Xeroxs industry is on a general downturn due to
  the increased usage of electronic media. For
  example, people are electing to have their bank
  statements emailed to them instead of printed and
  mailed. This cuts directly into Xeroxs
  production printing (Docutech) revenue.
• To remain profitable, Xerox must either 1) cut
  expenses (see the income statement and this
  article) 2) expand into new markets (See
  Opportunities for Growth on Page 4 of Xeroxs
  annual report PDF file in addition to this news
  article).

DocuColor System
DocuPrint System
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Part C. Income Statement

• Xerox presents a Multistep Income Statement
  within the 2002 annual report.
• The 185 million dollar increase in net income can
  be attributed to the abandonment of the InkJet
  business segment, selling assets totaling
  approximately 2.7 billion, and implementing
  actions to reduce costs by 1.7 billion.

2002 2001
Gross Profit 2,555 2,273
Income from Operations (8845) (9171)
Net Income 91 (94)
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Part C. Balance Sheet
(in millions)
Assets Liabilities Stock Holders Equity Assets Liabilities Stock Holders Equity Assets Liabilities Stock Holders Equity Assets Liabilities Stock Holders Equity
2002 25,458 21,283 4,175
2001 27,645 23,618 4,027

• Total cash decreased by 28. This is offset by
  the total short-term liabilities decreasing by 34

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Part D. Accounting Policies

• Significant accounting policies relating to
  revenue recognition,
• cash, short-term investments, inventories, and
  property and equipment

• The consolidated financial statements include the
  accounts of Xerox Corporation and all of its
  controlled subsidiary companies.
• Xerox sells most of its products and services
  under bundled contract arrangements, which
  contain multiple deliverable elements.
• Due to Xerox's credit ratings, many of its
  derivative contracts and several other material
  contracts require it to post cash collateral or
  maintain minimum cash balances in escrow.
• Xerox sponsors pension plans in various forms
  and in various countries covering substantially
  all employees who meet certain eligibility
  requirements.

Topics of the notes to the financial statements
Note 1 Summary of Significant Accounting
Policies Note 2 Restructuring Programs Note 3
Acquisitions Note 4 Divestitures and Other
Sales Note 5 Receivables, Net Note 6
Inventories and Equipment on Operating Leases,
Net Note 7 Land, Buildings and Equipment,
Net Note 8 Investments in Affiliates, at
Equity Note 9 Segment Reporting Note 10 Net
Investment in Discontinued Operations
Note 11 Debt Note 12 Financial
Instruments Note 13 Employee Benefit Plans Note
14 Income and Other Taxes Note 15 Litigation,
Regulatory Matters and Other Contingencies Note
16 Preferred Securities Note 17 Common
Stock Note 18 Earnings Per Share Note 19
Financial Statements of Subsidiary Guarantors
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Part E. Financial AnalysisLiquidity Ratios
(in millions, unless otherwise stated)
2002 2001
Working Capital 3,232 2,613
Current Ratio 1.12 1.26
Receivable turnover 7.65 times 8.97 times
Average days sales uncollected 47.7 days 40.7days
Inventory turnover 3.43 times 3.79 times
Average days inventory on hand 106 days 96 days
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Part E. Financial AnalysisProfitability Ratios
2002 2001
Profit margin 0.59 (0.55)
Asset turnover 0.62 times 0.61 times
Return on assets 0.35 (0.34)
Return on equity 2.1 (2.3)
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Part E. Financial AnalysisSolvency Ratio
2002 2001
Debt to equity ratio 5.0 5.8
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Part E. Financial AnalysisMarket Strength Ratios
2002 2001
Earnings per share 0.02 -0.15
Dividend yield 0. 28 0.25