Anticipating a challenging business environment in 2009, Xerox Corp. will slash five percent of its work force, or about 3,000 jobs, in the next six months. Although the copier maker continues to show growth in sales to small- and mid-sized businesses and in its annuity-like businesses, supplies and services sold to repeat customers, Chairman and Chief Executive Anne Mulcahy told analysts on the copier maker's third-quarter 2008 earnings call gross profit margin remains under pressure.
High-end equipment orders from larger enterprises, particularly in the United States and the United Kingdom, fell three percent compared with third quarter 2007 ended September 30. For the foreseeable fututre, Mulcahey said, the ability to deliver double-digit earnings with gross margin below 40 percent would only be accomplished through operating efficiencies, such as reduction in headcount.
Retirees, however, will shoulder some of the burden, too. Starting Jan. 1, 2010, the company will no longer subsidize premiums used to buy supplemental coverage by Medicare-eligible retirees and their spouses, as delineated in the third-quarter 2008 10-Q regulatory filing:
- As disclosed in our 2007 Annual Report, at December 31, 2007 the benefit obligation for all retiree health plans was $1.5 billion. In the fourth quarter 2008 we amended our domestic retiree health benefit plan to eliminate the subsidy currently paid to current and future Medicare-eligible retirees effective January 1, 2010. The amendment will result in a net decrease of approximately $225 million in the benefit obligation and a corresponding after-tax increase to shareholders equity. The amendment is also expected to decrease pre-tax net retiree health benefit expense by approximately $15 million for the fourth quarter of 2008 and by an additional $50 million for the full year 2009.
At December 31, 2007, contractual retiree health payments in total for 2008 and 2009 were projected at $105 million and $110 million. In addition, Xerox's pension benefit obligation stood at $10.4 billion, of which $653 was unfunded.
Xerox will take a $400 million restructuring charge in the fourth quarter, but expects to realize cost savings in 2009 of $200 million.