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Xerox Reports Earnings: Production color installs grow 16%

Press release from the issuing company

STAMFORD, Conn.--Oct. 21, 2004-- Xerox Corporation announced today another quarter of improved earnings reflecting increased sales of industry-leading digital systems, demand for document services and continued operational excellence. The company reported third-quarter earnings per share of 17 cents including a 4-cent benefit from Xerox's share of a Fuji Xerox pension settlement gain, which was partially offset by restructuring charges of 2 cents per share. "Xerox's innovative technology and service offerings - delivered through an expanding distribution system with a lean and flexible business model - continue to solidify our market leadership, driving consistently strong earnings performance," said Anne M. Mulcahy, Xerox chairman and chief executive officer. Equipment sales grew 5 percent in the third quarter including a currency benefit of 2 percentage points. Total revenue for the third quarter was flat year-over-year at $3.7 billion including a currency benefit of 3 percentage points. Revenue growth continued to be impacted by post-sale revenue declines from the company's older light-lens technology and weak performance in Latin America. To drive growth in this region, the company is implementing a two-tier distribution channel across Latin America. Third-quarter revenue from Xerox's targeted growth areas - office digital, production digital and value-added services - grew 7 percent year-over-year and now represents about 74 percent of the company's revenue. Xerox continues to offer the industry's broadest portfolio of technology and services with 35 new products announced year to date. In the third quarter, Xerox launched the DocuColor 8000, an 80 page-per-minute digital color production press, and upgraded software offerings like FreeFlow(TM) and DocuShare that improve customers' productivity by simplifying workflow. Earlier this month Xerox announced a wave of 17 new products including 12 office products that set the industry standard for speed and functionality like the WorkCentre Pro C3545 multifunction system, a color system with speeds fastest in its class. "Offered at competitive prices and integrated with value-added services, Xerox's technology investments continue to fuel growth with about two-thirds of all equipment sales in the third quarter coming from products launched in the past two years," said Mulcahy. Revenue from color products grew 18 percent in the third quarter and is a key driver of Xerox's growth strategy as the increasing volume of pages printed on Xerox's color systems flows through to post-sale revenue. Color revenue represents 24 percent of Xerox's total revenue. Leading with Services Xerox is on track to deliver double-digit annual growth in Xerox Global Services, which offers consulting, imaging and content management for businesses small to large. Last month the company announced a $23 million document services contract with HSBC as well as a multimillion-dollar win with The Boeing Company that includes 5,000 Xerox multifunction systems, services and Web-based management software. Earlier today Xerox announced a multimillion-dollar services contract with Sun Microsystems for Xerox to manage the entire fleet of Sun's document management devices across 119 sites in 31 European countries. Driving the New Business of Printing Through the company's production business, Xerox continues to lead the "new business of printing" by helping commercial printers and document-intensive industries complement offset printing with the more dynamic world of digital. Production color installs grew 16 percent in the quarter largely due to the Xerox iGen3 digital color production press and DocuColor 5252 digital color systems. Installs of production monochrome products increased 8 percent primarily driven by demand for the company's Nuvera(TM) 100/120 copier/printer and the Xerox 2101 light production system. Digitizing the Office Installs of Xerox office monochrome systems were up 20 percent in the third quarter due to continued strong demand for desktop and office multifunction devices. Office color multifunction installs grew 19 percent and office color printing installs were up 40 percent driven by positive momentum from the Phaser line of solid ink and laser printers. Gross margins remained strong at 41.3 percent in line with the company's full-year expectations. Selling, administrative and general expenses increased 1 percent including Olympic sponsorship expenses, incremental marketing investments and a 3-percentage point adverse impact of currency. Xerox generated operating cash flow of $435 million in the third quarter contributing to a cash balance of $3.4 billion. Debt decreased $1 billion from the third quarter 2003. Commenting on the balance of the year, Mulcahy said she expects fourth-quarter earnings in the range of 20-22 cents per share, contributing to full-year earnings in the range of 83-85 cents per share.