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Thursday April 18, 12:46 pm Eastern Time

Xerox Seen Renegotiating With Banks, Despite Filing
By: Donna Fuscaldo, Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Xerox Corp. (NYSE: XRX - news) (XRX) is expected by industry watchers to refinance a portion of its $7 billion credit line, despite strong language the company used in a filing wi ADVERTISEMENT


th the Securities and Exchange Commission.

Late Wednesday, the Stamford, Conn ., copier icon said in an SEC filing that its viability will be in doubt if it fails to refinance part of a $7 billion credit agreement that matures Oct. 22 . The company said it believes that " significant progress" has been made in discussions with the 57-bank group involved in the negotiations, and that talks should be completed by the end of June.

Still, if the credit pact isn't refinanced by Oct. 22 , the bank group could declare a payment default and accelerate maturity of the outstanding balance, Xerox said.

Despite Xerox's comments Thursday that the SEC filing doesn't represent any new developments and that it has made "significant" progress with the banks, investors still sold off the stock over fears that Xerox could be in trouble.

Shares of the company fell as much as 6% at the open, but recovered a bit and were recently trading down 4%, or 40 cents, to $9.19, on volume of 8.4 million. Average daily volume is 5.1 million shares.

According to Xerox spokesman Christa Carone, Xerox said on April 1 it made progress with the lenders in renegotiating the revolver and extending its maturity. She noted that Xerox has $4.7 billion in cash.

While it's true, Xerox's ability to continue as a going concern would come into question if it couldn't renegotiate its revolver, analysts said Thursday that the company should be successful in its dealings with the banks.

"We do believe that Xerox will be able to renegotiate the bank line," wrote Lehman Brothers Inc. analyst Caroline Sabbagha, in a research report.

Echoing her assessment, Peter Ausnit, an analyst at Deustche Bank, said his expectation is Xerox will be able to refinance. Ausnit noted that Xerox's disclosure wasn't a new development.

But if expectations are that Xerox will work out a deal with the 57 banks, which holds the fate of the company in their hands, why did it use such strong language in its filing?

Greg Smith, an analyst at H&R Block, said the answer is simple considering Xerox's recent agreement with the SEC.

"It's their duty to put it in the filling, especially given the recent circumstances," said the analyst. "Here's a firm that has been exonerated from what's happened over the last several years. If anything they don't want to bring on additional trouble" by not disclosing the ramifications if the credit line matures in October.

Earlier this month, Xerox agreed to pay a $10 million civil penalty - the largest ever levied against a public company by the SEC - in connection with accounting irregularities. The company also has to restate its financial results from 1997 to 2000.

The SEC had been investigating Xerox since June 2000 , claiming the company's revenue-allocation methodology for bundled contracts, which typically include equipment, services, supplies and financing, didn't comply with regular accounting standards. In its settlement, Xerox neither admitted or denied the charges.

According to Smith, Xerox's comment in the filing could actually speed up negotiations with the banks.

"I think this provides additional urgency for the bankers to do something," said Smith. "Clearly they don't want to let it go to October."

While Lehman's Sabbagha agreed that Xerox had to make such a risk disclosure because the bank line matures in less than a year, she noted that a final agreement with the banks could get delayed until Xerox files its rested financials, which will be within in 90 days.

Although Sabbagha is cautious on the company over the long term, she said the stock could get back into the low teens on positive news, like renegotiating its bank line.
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Xerox Posts Net Loss Under Old Accounting
By Franklin Paul

NEW YORK (Reuters) - Xerox Corp. (NYSE:XRX - news) on Wednesday posted a first-quarter net loss versus a year-ago profit and an 11 percent drop in revenues -- unaudited results that are subject to change under an agreement with federal regulators.
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Three weeks ago, the Securities and Exchange Commission charged Xerox, known for its printers and photocopiers, with using accounting tricks to distort financial results from 1997 through 2000. Xerox agreed to pay a $10 million penalty, restate its results, and did not admit or deny any wrongdoing.

Xerox, also struggling to turn a profit as it faces tough competition and a slowdown in corporate spending, said its net loss was $64 million, or 9 cents a share. For the same period in 2001, Xerox had net income of $202 million, or 25 cents.

Excluding costs from a restructuring and other special items, Xerox posted a profit of $53 million, or 7 cents per share. Analysts expected, on average, a loss of 1 cent per share, with the range from a loss of 3 cents to profit of 3 cents, according to Wall Street tracking firm Thomson Financial/First Call.

Revenues, after currency translations, fell to $3.7 billion from $4.2 billion in 2001. Analysts, on average, forecast about $3.75 billion, according to research firm Multex.

Credit Suisse First Boston analyst Gibboney Huske said revenues were ``still facing challenges. They need to get the top line going again because you can't cut costs forever.''

Xerox trimmed global staffing by 4,300 to 74,600 in the quarter, and cut inventories by $490 million, or 28 percent, from a year ago. Xerox said cost cuts in the quarter will lead to savings of more than $100 million annually.

Merrill Lynch analyst Shannon Cross said ``the cost cutting and operational improvements should make the banks feel more comfortable.''

Chairman and Chief Executive Anne Mulcahy said on a conference call that ``a lot of operations'' were not affected by the restatement, adding that the company is making ``operational progress.''

Cross said Xerox's business was ``stable,'' but added ``it has definitely been hit by the economy.''


ANXIOUS ABOUT DEBT

Analysts and investors were watching Xerox's debt status. It faces an Oct. 22 deadline as it negotiates with 57 banks over a revolving credit agreement of more than $7 billion. If talks fail, the banks could declare a default and move to recover funds.

Xerox said it expects to complete a refinancing by June.

``The banks clearly want us to pay down a portion of the revolver, they want to renegotiate the balance and extend the term at higher interest rates,'' Mulcahy told Reuters in an interview. ``So all of the rationale for the banks to conclude this negotiation is really quite positive,'' Mulcahy said.

The Stamford, Connecticut-based company said it had about $4.7 billion in worldwide cash at the end of March after repaying $550 million in first-quarter maturing debt. The company said that debt after cash was $12.3 billion, 17 percent less than a year ago.

Xerox said the restatement of results will include adjustments in the timing and allocation of lease revenues, which will be reallocated among equipment, service, supplies and finance revenue streams. It will use a different methodology than the one used from 1997 through 2000 and criticized by regulators.

Xerox has until June 30 to file its 2001 annual report and adjust first-quarter 2002 fiscal figures, using the new accounting methodologies.

Shares of Xerox closed up 18 cents, or 1.89 percent, at $9.72 in Wednesday trading on the New York Stock Exchange. Since the start of the year, the stock has fallen about 11 percent, and underperformed the S&P 500, which has slipped
Reuters Company News
Xerox rtgs cut by Moody's on debt, cash flow worry


NEW YORK, May 1 (Reuters) - Xerox Corp.'s (NYSE:XRX - news) "junk" ratings were cut as many as four notches by Moody's Investors Service on Wednesday over concern about the copier maker's heavy debt load and "modest" sales growth prospects.


"The size of this downgrade is a surprise," said Domenick Fumai, a fixed-income analyst at BNP Paribas, which trades Xerox bonds. "Moody's may be trying to be proactive, but this seems like a bit of an overreaction." Fumai has a "hold" rating on Xerox bonds.

Moody's cut Stamford, Connecticut-based Xerox's senior unsecured debt three notches to "B1," its fourth highest junk grade out of 11, from "Ba1."

It also cut Xerox's subordinated debt four notches to "B3," its sixth highest junk grade, from "Ba2," and its preferred stock four notches to "Caa1," its seventh highest junk grade, from "Ba3." Its rating outlook is negative, and its actions affect $9 billion of debt.

The cut should raise Xerox's borrowing costs, at a time Xerox faces tough competition and a slowdown in corporate spending. Xerox must renegotiate $7 billion of bank loans by October.

Xerox Chief Executive Anne Mulcahy called Moody's downgrade "inconsistent with the company's progress and momentum" in a statement. "We have significantly improved our operations and strengthened our liquidity," she added.

Moody's said while Xerox has "made very good progress in reducing debt through asset sales and lowering its overhead through cost containment initiatives, its ability to generate meaningful cash flow going forward is in good part dependent on revenue growth," whose prospects Moody's deemed "modest."

The company's free cash flow in its main copier business fell by nearly half last year, Moody's said.

Another rating agency, Standard & Poor's, on April 18 threatened to cut Xerox's "BB" corporate credit rating, its second highest junk grade.

Xerox shares closed Wednesday on the New York Stock Exchange at $9.07, up 22 cents. They have fallen 8 percent in the last year. Moody's announced the downgrade after U.S. markets closed.

CREDIT FACILITY

Fumai said Xerox's big concern is its $7 billion credit line, as investors grow more cautious about other big companies with credit concerns such as Qwest Communications International Inc. (NYSE:Q - news) and WorldCom Inc. (NasdaqNM:WCOM - news), two phone companies.

"People are concerned about banks possibly not lending to less-than-stellar credits," said Fumai. "I think the banks will at the end of the day renegotiate the facility, (but) the downgrade is going to hurt Xerox on pricing, and I would expect banks to place particularly restrictive covenants on Xerox."

Xerox said on Wednesday it expects to refinance the credit line by June 30.

Moody's said it expects Xerox to use a "significant portion" of its $4.7 billion of cash to repay the bank loans, and expects a "notable increase" in pricing terms. The company has about $2.4 billion of other obligations maturing this year and $2.9 billion in fiscal 2003, Moody's said.

Xerox last week posted a first quarter net loss of $64 million, or 9 cents per share, on revenue of $3.7 billion.

The unaudited results are subject to change under an agreement with the Securities and Exchange Commission. The SEC had charged Xerox with using accounting tricks to distort financial results from 1997 through 2000. Xerox agreed to pay a $10 million penalty and restate its results, without admitting or denying any wrongdoing.
Xerox Comments on Ratings Action By Moody's



Xerox Corporation's chief executive officer comments on the ratings decision by Moody's Investor Services, calling it "inconsistent with the company's progress and momentum."

"Our performance demonstrates that we have significantly improved our operations and strengthened our liquidity. We have consistently and effectively executed on every element of our turnaround plan and have clearly set the stage for a return to full-year operational profitability," said Anne Mulcahy, Xerox chairman and chief executive officer.

Among the company's recent accomplishments:


Xerox Capital Services, Xerox's joint venture with GE Capital Vendor Financial Services, formally began operations this week. Xerox Capital Services will manage Xerox's customer administration and leasing activities in the U.S., a key element of the company's plan to transition equipment leasing to third-party partners.

The company's worldwide cash balance increased to $4.7 billion at the end of the first quarter. Since announcing the turnaround plan in October 2000, Xerox has reduced debt net of cash by 28 percent to $12.3 billion, as of first-quarter 2002.

Xerox has taken actions to reduce annual spending by more than $1.2 billion over the past 18 months, while investments in research and development have been sustained at about 6 percent of revenue.

Xerox has announced it expects to complete negotiations no later than the end of June to refinance the $7 billion revolving line of credit.

Xerox reached a settlement with the Securities and Exchange Commission, effectively resolving all outstanding issues with the SEC. Xerox neither admitted nor denied the allegations of the SEC complaint.
The company said it expects to file its 2001 10-K and 2002 first-quarter 10-Q by the June 30 extension deadline.

Mulcahy concluded, "We will continue improving the efficiencies of our operations; investing in our core production, office and services businesses to drive future profitable and sustainable revenue growth; and delivering on our commitment to build back value in the company."

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