STAMFORD, Conn.--Jan. 27, 2004-- Xerox Corporation announced today better-than-expected fourth-quarter earnings that reflect strong sales of the company's industry-leading color systems and office digital products as well as continued operational excellence through disciplined cost management. The company reported fourth-quarter 2003 earnings per share of 22 cents including a 3-cent positive effect from a reduced litigation reserve. "Xerox is operating on full throttle with winning results," said Anne M. Mulcahy, Xerox chairman and chief executive officer. "Our 2003 performance -- capped by a successful fourth quarter -- is proof positive that the Xerox value proposition is clicking with customers and that our strengthened operations are delivering sustainable benefits." Technology Investments Fuel Equipment Sales Equipment sales grew 11 percent in the fourth quarter including a currency benefit of 7 percentage points. About 60 percent of all equipment sales in the quarter were generated from products launched in the past two years, reflecting a strong return on investment. Total revenue for the fourth quarter was $4.3 billion, an increase of 1 percent from the fourth quarter of 2002 including a currency benefit of 6 percentage points. Revenue growth was adversely affected by declining post-sale revenue from the company's older light lens technology and its exit in 2001 from the small office/home office business. Total fourth-quarter revenue from the company's targeted growth areas -- office digital, production digital and value-added services -- grew 10 percent year over year and now represent about 73 percent of the company's revenue. Xerox also noted significant progress in its developing markets operations, which delivered total revenue growth of 1 percent in the quarter and 21-percent equipment sales growth. Revenue from color products grew 20 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. "Major fourth quarter wins with customers like Office Depot, Microsoft, United Technologies, Bechtel and Owens Corning represent just a sample of large enterprises who depend on Xerox's integrated technology and services for more efficient workflow and lower cost, higher quality document management," added Mulcahy. 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 make the transition from offset to the more dynamic world of digital. Production color installs grew 19 percent in the quarter reflecting strong sales of the Xerox DocuColor 6060 and DocuColor iGen3 digital color presses as well as initial placements of the DocuColor 5252, which launched in October. In its first full year of availability, the iGen3 has won widespread customer acceptance and is now sold in 34 markets worldwide. Progressive Impressions International, a global developer of technology-based marketing solutions including one-to-one print applications enabled by Xerox innovation, ordered 6 iGen3 systems last month -- the largest iGen3 contract to date. Installs of production monochrome products increased 22 percent primarily driven by accelerated demand for the Xerox 2101 digital light production system, which partially offset install declines in production publishing. Digitizing the Office Xerox has nearly doubled its portfolio of digital office systems in the last year and now has the industry's broadest line of award-winning products for offices small to large. Installs of Xerox office monochrome systems were up 22 percent in the fourth quarter as demand increased for the company's competitively priced digital copiers and multifunction devices. Office color multifunction installs grew 25 percent and office color printing was up 30 percent due to the success of Xerox's DocuColor 3535, WorkCentre 24, WorkCentre Pro 32 and WorkCentre Pro 40 color systems as well as the Phaser 7300 and Phaser 8200 color printers. Market-making Innovation Building on its 2003 success, Xerox said that it's making a significant announcement later this week that further broadens its portfolio of systems and services for both production and office environments. "The new offerings will create noise in the marketplace, capture our customers' attention and put our competitors back on their heels," said Mulcahy. Operational Excellence The company's lean and flexible business model continued to deliver positive operational results including fourth-quarter gross margins of 42.5 percent. Selling, administrative and general costs decreased $23 million or 2 percent from fourth quarter 2002, including an adverse currency impact of 4 percentage points. Efficient working capital management contributed to significant fourth-quarter operating cash flow of about $1 billion and a year-end cash position of $2.5 billion. Commenting on the first quarter, Mulcahy said, "We expect consistent positive performance with services-led technology wins that will continue to drive equipment sales growth. From commercial print shops that use Xerox systems to grow their businesses to offices of any size that rely on us for productivity solutions, the Xerox equation of innovative technology plus document management expertise will continue to deliver strong results for our stakeholders." Full-Year 2003 Results For full-year 2003, Xerox reported: -- Net income of $360 million or 36 cents per share, including a previously announced 17-cent litigation charge and a 5-cent charge for the remaining unamortized fees associated with the company's terminated 2002 credit facility. -- Equipment sale revenue of $4.3 billion, an increase of 7 percent from $4 billion in 2002, including a 6 percentage point currency benefit. -- Total revenue of $15.7 billion, a decline of 1 percent from $15.8 billion in 2002, including a 5 percentage point currency benefit. -- Debt reduction of $3 billion. -- Operating cash flow of $1.9 billion. -- Year-end cash balance of $2.5 billion.