Xerox 10-Q 2004 Q2 Quarterly report

Exhibit 12

XEROX CORPORATION

The ratio of earnings to fixed charges, the ratio of earnings to combined fixed charges and preferred stock dividends, as well as any deficiency of earnings are determined using the following applicable factors:

Earnings available for fixed chargesare calculated first, by determining the sum of: (a) income (loss) from continuing operations before income taxes, (b) distributed equity income, (c) fixed charges, as defined below and (d) amortization of capitalized interest, if any. From this total, we subtract capitalized interest, if any.

Fixed chargesare calculated as the sum of (a) interest costs (both expensed and capitalized), (b) amortization of debt expense and discount or premium relating to any indebtedness and (c) that portion of rental expense that is representative of the interest factor.

Preferred stock dividendsused in the ratio of earnings to combined fixed charges and preferred stock dividends consist of the amount of pre-tax earnings required to cover dividends paid on our Series B convertible preferred stock and our Series C mandatory convertible preferred stock. The Series B dividends are tax deductible and, as such, are equivalent to the pre-tax earnings required to cover such dividends. The Series B convertible preferred stock was redeemed and converted to common stock as of May 27, 2004 and, as such, there will be no future dividends beyond such date.

Computation of Ratio of Earnings to Fixed Charges

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	($ In millions)
Fixed charges:
Interest expense	$	170		$	241		$	354		$	479
Portion of rental expense which represents interest factor		24			18			44			37
Total fixed charges	$	194		$	259		$	398		$	516
Earnings available for fixed charges:
Earnings	$	299		$	126		$	531		$	(6	)
Less: Undistributed equity in income of affiliated companies		(11	)		(7	)		(34	)		(20	)
Add: fixed charges before capitalized interest and preferred stock dividends		194			259			398			516
Total earnings available for fixed charges	$	482		$	378		$	895		$	490
Ratio of earnings to fixed charges		2.48			1.46			2.25			*

* Earnings for the six months ended June 30, 2003 were inadequate to cover fixed charges by $26 million.

Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
	($ In millions)
Fixed charges:
Interest expense	$	170		$	241		$	354		$	479
Portion of rental expense which represents interest factor		24			18			44			37
Total fixed charges	$	194		$	259		$	398		$	516
Preferred stock dividends pre-tax income requirements		30			11			63			21
Total combined fixed charges and preferred stock dividends	$	224		$	270		$	461		$	537
Earnings available for fixed charges:
Earnings	$	299		$	126		$	531		$	(6	)
Less: Undistributed equity in income of affiliated companies		(11	)		(7	)		(34	)		(20	)
Add: fixed charges		194			259			398			516
Total earnings available for fixed charges and preferred stock dividends	$	482		$	378		$	895		$	490
Ratio of earnings to combined fixed charges and preferred stock dividends		2.15			1.40			1.94			**

** Earnings for the six months ended June 30, 2003 were inadequate to cover combined fixed charges and preferred stock dividends by $47 million.