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Xerox Reports Q1 Loss on Special Charge, Equipment Sales Up 3%

Press release from the issuing company

STAMFORD, Conn.--April 23, 2003--Xerox announced today a first-quarter loss of 10 cents per share, including a previously announced 25 cent-per-share litigation charge. Increased demand in key markets and strong operational performance contributed to the company exceeding expectations in the quarter, excluding this charge. Revenue from equipment sales is a key indicator of customer demand for the company's expanded offerings in the office and production markets. In the first quarter, equipment sales increased 3 percent, a sequential improvement from the 2-percent decline in the fourth quarter of 2002. The 3-percent increase reflects first-quarter growth in color and multifunction and a currency benefit of 6 percentage points. Total revenue for the first quarter was $3.8 billion, a year-over-year decline of 3 percent including a currency benefit of 4 percentage points. The decrease in first-quarter total revenue was primarily driven by declines in the company's developing markets business and light lens products. "While the economic environment was more difficult than expected in the first quarter, we effectively managed this challenge by leveraging the benefits of our leaner, more flexible business model," said Anne M. Mulcahy, Xerox chairman and chief executive officer. Xerox's leading technology in the production color and office color markets continued to yield strong revenue results with total color revenue up 16 percent year-over-year, largely due to the success of Xerox's DocuColor series. "Through our investments in innovation, we set our sights on markets with the greatest potential for profitable revenue growth. Our effective execution of this strategy is generating positive results through increased equipment sales, improved marketshare and expanded opportunities to integrate Xerox's suite of services with our industry-leading technology," added Mulcahy. The company noted that second-half 2002 marketshare reports show Xerox gaining ground in key segments of the business including production color, office color multifunction and office black-and-white multifunction. First-quarter 2003 installations also grew in these important markets, evidence of the strong momentum from the 17 new products launched last year. For example, production color installs grew 8 percent in the first quarter led by increased demand for the Xerox DocuColor 6060 Digital Color Press. The company recently reported that its DocuColor 6060 and DocuColor 2000 family have surpassed 7,500 installs worldwide, making them the best-selling systems in their class. According to the latest industry reports for second-half 2002, Xerox holds the No. 1 production color marketshare position in the U.S. and Europe. In the office, customer demand for Xerox's advanced multifunction systems also led to first-quarter install growth. Office color multifunction installs increased 48 percent and office black-and-white multifunction grew 15 percent, largely due to the Xerox Document Centre 500 series launched last year. Building on this success, Xerox said that it's making a significant office product announcement next week that leverages the effectiveness of its strengthened operations, positioning the company to win marketshare and drive future revenue growth. The company highlighted several recent customer contracts that represent the value of Xerox's integrated technology and services, which enable more efficient workflow in businesses small to large: * Bank of America has engaged Xerox for continued managed services and document solutions valued at $50 million over the next three years. Xerox becomes the bank's sole provider of office digital systems with a contract that includes 6,300 digital multifunction systems. * In contracts that total $15 million, Arkansas Blue Cross/Blue Shield, HealthNow New York Inc. and United Health Services have chosen Xerox Global Services to revamp their business processes and help reduce document-management expenses by up to 30 percent. * In regions around the world, public and private sector businesses now depend on Xerox services to manage their document-intensive work processes. The company recently won a total of more than $13.5 million in technology and service agreements with Lloyds Bank of Argentina, the Education Department of South Africa, Bosch Automotive in Brazil and the Pension Fund of Russia. For the first quarter, gross margins were up 0.9 percentage points to 41.9 percent. Selling, administrative and general costs continue to decline and SAG as a percent of revenue was 27.1 percent, a year-over-year improvement of 3.2 percentage points. The company reported first-quarter operating cash flow of $159 million. Xerox's worldwide cash position increased to $3 billion at the end of the first quarter. Mulcahy added, "Despite economic uncertainty, our significantly improved operations and the strength of our financial foundation position Xerox to be even more aggressive in the marketplace with the industry's broadest portfolio of innovative systems and services." On Monday, Xerox reported that it was taking a first-quarter 25-cent per share or $183 million after-tax litigation charge related to the Berger v. Retirement Income Guarantee Plan litigation, a case brought against the company's primary U.S. pension plan for salaried employees. Following the recent oral argument of an appeal from a district court's judgment, Xerox and external counsel reassessed the level of probability for a favorable outcome. Under accounting standards, this reassessment required the company to take a charge for the amount of the judgment in the case.