By Ann Levine October 28, 2003 – Xerox Corporation (NYSE: XRX) announced third quarter earnings of $0.11 per share as compared with $0.04 for the same period last year. Xerox reported revenue of $3.7 billion. Revenue showed a decline of 2% compared to the third quarter of 2002. Gross profit margin was stated at $41.1 million reflecting seasonality in the third quarter. Topics of this summary: * Company Performance Overview * Guidance * Q & A Company Performance Xerox reported that revenues were down in the third quarter mainly due from the exit from SOHO and significant decline in Light Lens. Targeted growth areas include office digital, services and digital imaging. Growth in these areas was 6%. Note: The company expects the growth areas to comprise 90% of revenues by 2005. Color revenues were up 15% and account for 20% of the company's total revenue. Production color installs were up 8%. In production through the first half of 2003, Xerox maintained market share leadership in black and white publishing, printing and color. In black & white publishing, market share was up 5 points to 66% in the US and down 2 points or 53%, in Europe. In printing, Xerox share was up 4 points to 20% in the US and 24% in Europe. In color, market share was 51% in the US and in Europe 62%. In the DMO segment, equipment sales revenue was 33% and total revenue growth up 9%. To maintain cost competitiveness, Xerox has implemented Six Sigma efforts which have been an enabling tool to drive costs down. Six Sigma has touched 9,000 people in the company and has resulted in 258 projects in place currently. Guidance Xerox plans to deliver full year 2003 earnings in the $0.50-0.55 range. Q & A 1. Xerox anticipates that revenue growth for the fourth quarter will be similar to levels it has already seen. Post sale revenue is expected to stabilize and Xerox expects modest improvement. 2. Pressures on margin performance include balanced pricing and investments. The company is dealing with productivity issues to ensure margins are not impacted. 3. Xerox has usually seen an increase in gross margins in the fourth quarter, aside from last year's licensing revenues that had an impact; the company expects comparable gross margins as compared to previous years. 4. $40 million in restructuring is incremental to the previously mentioned $115 million. 5. In previous calls the company made a commitment to bring down SAG as a percentage of revenue. Although today's financials showed a 2% drop, the company is on track and comfortable with its progress in this regard and will continue to bring this down in absolute dollars. 6. Xerox was not willing to provide specifics on restructuring except to state that the $115 million in structuring costs will have minimal cash flow implications. Xerox is ensuring that every part of the business functions at benchmark capacity. 7. Color revenues were down in the third quarter, but Xerox is pleased with the overall revenues. Historically revenues always are down from the second quarter. 8. Within its business delivery, Xerox is not anticipating positive economic movement in the market. Although there has been some growth in the small to medium sized business segments, there is not a direct translation to a loosening up of capital. 9. Since pricing has been stable in the last three quarters, for 2004 Xerox does not plan a major shift. 10. There are 300 people are fully employed in Six Sigma efforts at Xerox. There is no time table as to when the benefits from these activities are expected.