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Xerox Reports Q4 2004 Earnings: Color Revenue Up 21%

Press release from the issuing company

STAMFORD, Conn.--Jan. 25, 2005-- Xerox Corporation today announced fourth-quarter 2004 earnings of 24 cents per share that reflect increased sales of industry-leading color technology, demand for document services and continued operational excellence. "In 2004 Xerox announced 40 new products, accelerated the growth of Xerox Global Services by helping customers streamline work processes, and drove demand for our industry-leading color technology with the Xerox iGen3 digital color production press, DocuColor systems and Phaser solid ink printers," said Anne M. Mulcahy, Xerox chairman and chief executive officer. "We're winning customers and beating the competition by delivering Smarter Document Management(SM) that reduces costs and improves productivity for businesses small to large. "At the same time, we continue to strengthen our operations through a sharp focus on reducing costs and debt, generating significant operating cash flow and increasing shareholder value. The end result: we delivered another quarter - and another year - of earnings growth, driven by a rich product portfolio and a lean business model." Equipment sales grew about 3 percent in the fourth quarter and total revenue was $4.3 billion, an increase of 1 percent from the fourth quarter of 2003. Both equipment sales and total revenue included a currency benefit of 3 percentage points. The overall post-sale trend improved as the revenue stream from new digital systems and services partially offset declines from the company's older light lens technology and weak performance in Brazil, both of which significantly impacted total revenue. To drive growth in Brazil, the company continues its implementation of a two-tier distribution channel. Fourth-quarter revenue from Xerox's targeted growth areas - office digital, production digital and value-added services - grew 5 percent year over year and now represents about 76 percent of the company's revenue. Revenue from color products grew 21 percent in the fourth 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 27 percent of Xerox's total revenue, a year-over-year increase of 5 percentage points. The company continues to deliver double-digit growth in Xerox Global Services, which offers consulting, imaging and content management. Increasingly, information technology companies are partnering with Xerox to integrate Xerox's expertise in document management with IT infrastructure services. Last month, Xerox and EDS announced a $40 million contract with Barclays Plc to manage Barclays' procurement, service, and helpdesk for more than 2,250 Xerox and other devices across nearly 200 Barclays Group office sites in the United Kingdom. Revenue from Xerox's value-added service offerings such as this grew 25 percent in the fourth quarter. 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 revenue was up 1 percent in the fourth quarter, largely due to a 10 percent increase in production equipment sales. Install activity in the fourth quarter was more heavily weighted toward higher-end digital color systems like the Xerox iGen3 and DocuColor 8000, which generate strong revenue and higher page volumes that flow through to future post-sale growth. As a result, production color installs were down 4 percent and install activity in production monochrome declined 9 percent. For production monochrome, the success of the Xerox Nuvera(TM) copier/printer light production systems only partially offset declines from light lens as well as declines in production publishing. In this segment, activity was impacted by customers choosing to delay purchasing decisions until the North American launch of the Xerox Nuvera digital production system scheduled for next month. Total revenue from Xerox's office business was flat with equipment sales down 1 percent in the fourth quarter largely due to product mix; the company sold a greater proportion of lower-priced desktop units compared to the fourth quarter of 2003. However, install activity was strong with office color multifunction systems up 17 percent and office color printing installs up 135 percent driven by laser and solid ink printers. Installs of office monochrome products were up 6 percent reflecting strong placements of Xerox WorkCentre desktop multifunction systems. Xerox continues to bolster its line-up of competitively priced office systems designed for workgroups of any size. In the fourth quarter, the company launched 12 new office products that set the industry standard for speed and functionality. Earlier this month, Xerox announced eight more products including two high-speed multifunction systems and digital copiers that target the 41-90 pages-per-minute segment of the market, which represents a substantial portion of the office business. The company reported fourth-quarter selling, administrative and general expenses of 25 percent of revenue, its lowest in the past decade. Fourth-quarter gross margins were 40.1 percent reflecting particularly strong performance in desktop office products and light production systems that impacted traditional product mix. The decline in gross profit from decreased revenue in Brazil also had an adverse impact on the company's overall gross margins. Xerox generated operating cash flow of $816 million in the fourth quarter and ended the year with $1.8 billion in operating cash flow after contributing about $400 million to pension plans. The company's year-end cash balance was $3.2 billion, an increase of about $750 million from year-end 2003. Debt was down more than $1 billion year over year. "We stayed well connected to our customers this past year, leveraging the power of Xerox people and solidifying our position as the global leader in document management, technology and services," said Mulcahy. "We're proud of our significant accomplishments and intend to build on this progress in 2005." For the first quarter of 2005, Mulcahy said she expects earnings in the range of 17-20 cents per share. Full-Year 2004 Results Net income of $859 million or 86 cents per share, including 8 cents per share from the gain on Xerox's sale of its ownership position in ContentGuard. Equipment sale revenue of $4.5 billion, an increase of 5 percent from $4.3 billion in 2003, including a 3 percentage point currency benefit. Total revenue of $15.7 billion, which remains unchanged from 2003, including a 3 percentage point currency benefit. Debt balance of $10.1 billion, a reduction of more than $1 billion from year-end 2003. Operating cash flow of $1.8 billion. Year-end cash balance of $3.2 billion.