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Xerox Q1 Earnings Exceed Expectations, Production color installs up 27%

Press release from the issuing company

STAMFORD, Conn.--April 23, 2004-- Xerox Corporation announced today first-quarter earnings that reflect strong sales of its industry-leading color systems and office digital products. The company reported first-quarter 2004 earnings per share of 25 cents including an 8-cent gain from the previously announced sale of substantially all of Xerox's ownership position in ContentGuard. "We began the quarter with the introduction of advanced offerings in the office and production markets that exemplify Xerox's strength as a technology powerhouse. And, we closed the quarter with strong sales that prove the effectiveness of our services-led value proposition - providing customers with practical solutions to reduce document costs and simplify work processes," said Anne M. Mulcahy, Xerox chairman and chief executive officer. Technology Investments Fuel Equipment Sales Equipment sales grew 9 percent in the first quarter including a currency benefit of 5 percentage points. Total revenue for the first quarter was $3.8 billion, an increase of 2 percent from the first quarter of 2003 including a currency benefit of 5 percentage points. Revenue growth continued to be impacted by post-sale revenue declines from the company's older light lens technology. The overall post-sale trend continued to improve as the revenue stream from new digital systems and services increasingly offsets declines from light lens. Total first-quarter revenue from the company's targeted growth areas - office digital, production digital and value-added services - grew 9 percent year over year and now represents about 71 percent of the company's revenue. Xerox also noted significant progress in its developing markets operations, which delivered total revenue growth of 6 percent in the quarter and 33-percent equipment sales growth. "With about 55 percent of all equipment sales in the quarter generated from products launched in the past two years, it is clear that Xerox's investment strategy is winning in the marketplace," added Mulcahy. Revenue from color products grew 26 percent in the first 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 now represents 23 percent of Xerox's total revenue. 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 27 percent in the quarter driven by accelerated demand for the Xerox DocuColor 6060 and 5252 digital color systems. Last month, Xerox reported the 10,000th installation of its entry-level color presses, reflecting the success of the DocuColor 2000 Series, which includes systems that range in speeds from 45 pages per minute to 60 ppm. Xerox also has been named the exclusive provider of digital color printing technology for Consolidated Graphics' 65 nationwide commercial printing locations. Consolidated Graphics has initially installed six Xerox DocuColor iGen3 Digital Production Presses and six DocuColor 6060 Digital Color Presses. In the first quarter, Xerox continued its market development for the iGen3 and expects momentum to build further next month at drupa, the world's largest graphic arts and printing event. Installs of production monochrome products increased 28 percent primarily driven by the Xerox 2101 light production system and initial demand for the new DocuTech 100/120 copier/printer, which began shipping in March. This black-and-white digital system defines a new product category, delivering the kind of printing and publishing power previously only available on higher-end equipment. 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 10 percent in the first quarter as demand increased from small and midsized businesses for the company's WorkCentre M15 and PE16 desktop multifunction devices. Office color multifunction installs grew 45 percent. Office color printing installs grew 46 percent due to strong demand for the Phaser 8400 solid ink color printer, which launched in January and, at less than $1,000, breaks a key price barrier. Earlier this month, Xerox launched its lowest-priced laser printers yet - the Phaser 6100 color printer starting at $699 and the Phaser 3130 monochrome printer starting at $299. "Our strong first-quarter install activity in key markets is complemented by a comprehensive services business that leverages Xerox's leadership position with large enterprises," said Mulcahy. "The customer base for Xerox Global Services has significantly increased in the past year as more enterprises rely on the unparalleled expertise of Xerox people to manage the endless flow of paper and digital documents that are so essential in business today." Xerox reported first-quarter selling, administrative and general expenses of 27.1 percent of revenue. First-quarter gross margins were 39.8 percent reflecting an increased proportion of desktop office and light production equipment sales. The company generated operating cash flow of $243 million, a year-over-year improvement of $84 million. Last month, Xerox sold substantially all of its interest in ContentGuard - a provider of digital rights management technology based on Xerox-developed innovation - to Time Warner Inc. and Microsoft Corp., resulting in an after-tax gain of $83 million. With this sale and other recent divestitures, Xerox is effectively commercializing its innovation while continuing to invest in the future through its commitment to research and development. Commenting on the second quarter, Mulcahy said she expects consistent progress through continued equipment sale growth and increased revenue in key markets. "Our strong first-quarter results set the stage for another year of positive performance that builds on the power of the Xerox brand and our competitively advantaged systems and services."