FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended: December 31, 1994
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from: ______ to ______
XEROX CORPORATION
(Exact name of registrant as specified in its charter)
1-4471
(Commission file number)
New York 16-0468020
(State of incorporation) (I.R.S. Employer Identification No.)
P.O. Box 1600, Stamford, Connecticut 06904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 968-3000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $1 par value New York Stock Exchange
Chicago Stock Exchange
$3.6875 Ten-Year Sinking Fund Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes: (X) No: ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy for information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
( )
The aggregate market value of the voting stock of the registrant held by non-
affiliates as of February 28, 1995 was: $12,737,543,642.
(Cover Page Continued)
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Class Outstanding at February 28, 1995
Common Stock, $1 Par Value 106,491,150 Shares
Class B Stock, $1 Par Value 1,000 Shares
Documents Incorporated By Reference
Portions of the following documents are incorporated herein by reference:
Part of 10-K in
Document Which Incorporated
Xerox Corporation 1994 Annual Report to Shareholders I & II
Xerox Corporation Notice of 1995 Annual Meeting of III
Shareholders and Proxy Statement (to be filed not later
than 120 days after the close of the fiscal year covered
by this report on Form 10-K).
PART I
Item 1. Business
Overview
Xerox Corporation (Xerox or the Company) is a global company serving the
worldwide document processing markets. The Company distributes its products
in the Western Hemisphere through divisions and wholly-owned subsidiaries, in
Europe and Africa through companies in which the Company has an 80 percent
financial interest and The Rank Organisation Plc (RO) has a 20 percent
financial interest as of February 28, 1995, and in Japan and other areas of
the Pacific Rim, Australia and New Zealand by Fuji Xerox Co. Ltd. (Fuji
Xerox), an unconsolidated joint venture, which is equally owned by Fuji Photo
Film Company, Ltd. of Japan and Rank Xerox Limited (Rank Xerox). On February
28, 1995, Xerox paid RO 620 million pounds sterling, or approximately $970
million, to increase the Xerox financial interest in Rank Xerox to about 80
percent from 67 percent.
The Company's Document Processing activities encompass developing,
manufacturing, marketing, servicing and financing a complete range of document
processing products and services designed to make offices around the world
more productive. The Company believes that documents will play a central role
in business, government and educational organizations far into the future and
that efficient processing of documents offers significant opportunities for
productivity improvements. The financing of Xerox equipment is generally
carried out by Xerox Credit Corporation (XCC) in the United States and
internationally by foreign financing subsidiaries and divisions in most
countries that the Company operates. Document Processing operations employed
87,600 people worldwide at year-end 1994.
In December 1993, the Company announced a worldwide Document Processing
restructuring program with the objectives of continuing to significantly
reduce the cost base and to improve productivity. As a result of the program,
the Company expects to reduce its worldwide Document Processing work force by
more than 10,000 employees by early 1996. In addition, the Company identified
specific facilities to be closed, which are publicly announced as local
implementation plans are finalized.
During 1994, actual savings of the restructuring program approximated $350
million. The cost savings resulting from the program are estimated to be
approximately $700 million in 1995 and at higher amounts thereafter. Some of
these savings are being reinvested to reengineer various business processes,
to support the Company's expansion into emerging markets, and to mitigate
anticipated effects of continuing pressure on gross margins.
In January 1993, the Company announced its decision to concentrate on the core
Document Processing business and disengage from the Insurance and Other
Financial Services (IOFS) businesses. Consistent with this objective, The Van
Kampen Merritt Companies, Inc. (VKM), an investment advisory organization, and
Furman Selz Holding Corporation (Furman Selz), an institutional brokerage,
investment banking and management firm, were sold in 1993. In 1994, Shields
Asset Management, Inc. (Shields), a Furman Selz subsidiary, and Regent
Investor Services, Incorporated (Regent), a subsidiary of Shields were sold.
Contracts were also signed in 1994 to sell Constitution Re Corporation (CRC)
and in 1995 to sell Xerox Financial Services Life Insurance Company and
related companies (Xerox Life). Both sales will close after regulatory
approvals.
The only continuing Financial Services business is the Insurance segment,
which includes Talegen Holdings, Inc. (Talegen), a holding company of seven
property and casualty insurance operating groups and three insurance related
service companies, Ridge Reinsurance Limited (Ridge Re) and that portion of
the Xerox Financial Services, Inc. (XFSI) headquarters costs and interest
expense associated with the continuing business activities. The Company will
continue to implement its strategy for divesting the remaining insurance
businesses in an orderly and disciplined way.
The ongoing operations of XCC and the international financing companies that
finance the purchase of Xerox equipment are unaffected by the decision to
disengage from IOFS.
A detailed discussion of the Company's major businesses follows.
Document Processing
The Document Processing Strategy
The Company believes that documents represent the knowledge base of an
organization and will play a dynamic and central role in business, government,
education and other organizations far into the future:
- Increasingly, documents are being created and stored in digital electronic
form.
- The use of electronically created paper documents will continue to
increase.
The Company's focus is on improving its customers' operational efficiency and
creating customer value by providing innovative document technologies,
products, systems, services and solutions that allow its customers to:
- Move easily within and between the electronic and paper forms of documents.
- Scan, store, retrieve, view, revise and distribute documents electronically
anywhere in an organization.
- Print or publish documents on demand, at the point closest to the need,
including those locations of our customers' customers.
- Integrate the currently separate modes of producing documents, such as the
data center, production publishing and office environments into a seamless,
user-friendly enterprise-wide document systems network - with technology
acting as an enabler.
Consistent with this focus, in 1994 the Company launched open document
services initiatives for the production publishing and printing industries to
provide customers with:
- A single, seamless and user-friendly network that allows people anywhere to
print documents on demand, where they are needed, without technology acting as
a barrier.
- Open systems that are flexible, scalable, modular and configurable.
- Advanced equipment and software that capture cost and productivity
advantages.
The Company has formed alliances to bring together the diverse infrastructures
that currently exist and to nurture the development of open standards for
production publishing and printing.
Market Overview
Based on its extensive research and analysis, the Company believes that the
worldwide markets, excluding Japan and the Pacific Rim, for document
processing products and services exceeded $200 billion in 1994. Xerox'
worldwide document processing revenues were $15.1 billion in 1994, of which 52
percent were generated in the United States, 31 percent in Europe, and 17
percent in the remainder of the world (excluding the unconsolidated revenues
of Fuji Xerox which operates in Japan and much of the Pacific Rim).
The Company is focused on market segments (Target Markets) which it believes
represent about half of the document processing markets. Within the Target
Markets, the Company has traditionally had a strong position in the black-and-
white copying market, which is expected to grow at a rate approximating real
economic growth in North America and Western Europe, and at a faster rate in
the developing countries. The remaining market segments, which include
digital publishing, electronic printing, and color copying and printing, are
expected to grow at a substantially higher rate. With the Company's many new
product introductions over the past four years, its participation in the
Target Markets has been considerably broadened and is expected to increase.
This growth will be driven by the transfer of document production from offset
printing to digital publishing, increasing customer requirements for network
and distributed printing, and accelerating demand for color documents.
Xerox Focus
The Company believes it is well positioned with a broad, competitive product
line to participate fully in the anticipated growth in the market segments in
which it competes.
Black-and-White Copying
The Company estimates that the black-and-white copying market was
approximately $32 billion in 1994.
The Company's future growth in the black-and-white copier market will largely
be a function of maintaining a broad, competitive product line which addresses
changing customer requirements, offering a consistently high level of service,
building new marketing initiatives from its strong relationship with major
accounts, expanding sales coverage through indirect channels, and extending
its leadership position in the rapidly growing markets for facilities
management and in developing countries.
The Company has a strong position with major accounts who demand a
consistently high level of service worldwide. The response times to customer
calls are uniformly short, the diagnostic equipment is state-of-the-art and
twenty-four-hour-a-day, seven-day-a-week service is available.
The Company has extended its successful major account marketing initiatives to
major associations, like the American Medical Association, which represent
more than two million current and prospective customers. In addition, the
Company has significantly increased the number of independent agents selling
Xerox equipment to these association accounts.
The market for commercial copiers is expanding rapidly in developing countries
in Latin America, Eastern Europe, the Commonwealth of Independent States,
Africa, China and India. The Company's 1994 revenues in all of these markets
grew faster than the growth in the developed markets.
Digital Products
The Company's digital products fall into three broad categories: Digital
Publishing, Electronic Printing, and Color Copying and Printing. Each is
discussed below:
Digital Publishing
In 1990, the era of digital publishing was launched and the Company announced
the DocuTech family which represents a transformation in the technical
foundation of the Company's traditional copier business.
Digital publishing technology is increasingly replacing older, traditional
offset printing as customers seek improved productivity and cost savings,
faster turnaround of document preparation, and the ability to print documents
"on demand". As electronics costs continue to decline and the technology
improves, the Company estimates that the potential industry market for digital
publishing will reach $5 billion by 1997.
Electronic Printing
The Company estimates that the electronic printing market was approximately
$20 billion in 1994 and is growing modestly.
This market has largely consisted of high-end host-connected printers and low-
end desktop printers. The Company expects significant future growth for
robust, fully featured printers serving multiple users on networks. This
growth will be driven by the increase in personal computers and workstations
on networks, client-server processing, accelerating growth in the demand for
enterprise-wide distributed printing, and rapidly declining electronics costs.
These faster, more reliable printers will print collated multiple sets on both
sides of the paper, insert covers and tabs, and staple or bind; but without
the labor-intensive steps of printing an original and manually preparing the
documents on high-speed copiers. In addition, documents can be printed on
these printers from remote data center computers, enabling the efficiencies of
distributing electronically and then printing, rather than printing paper
documents and then distributing them.
The Company has had a strong position in the high-end electronic printing
market segment since 1977, particularly in data centers with high-volume
printing requirements. The Company is well positioned to capitalize on the
growth in the electronic printing market because of both its innovative
technologies and its understanding of customer requirements for distributed
printing from desktop and host computers.
Color Printing and Copying
The Company estimates that the color copying and printing market was $5
billion in 1994 and is expected to grow to $11 billion in 1997.
The use of color originals in the office is accelerating. Independent studies
have concluded that color documents are more effective in communicating
information. The vast majority of industry shipments of workstations and
personal computers have color monitors, creating the need for economical,
convenient and reliable, high-quality color copying and printing.
Facilities Management
Another growth opportunity is the Xerox facilities management business which
provides printing, publishing, duplicating and related services to
approximately 1,500 customers, including legal firms, financial institutions,
insurance agencies and manufacturing companies. The Company's revenues from
these services, which are largely in the U.S., had excellent growth in 1994.
The Company is also aggressively building this business in Europe, Canada and
Latin America.
Xerox Products
The Company believes that its success is due to its ability to continually
improve the features and performance of its products based on meeting
demonstrated customer needs, competitive pricing levels, and its excellent
reputation for performance and service.
Black-and-White Copying
Xerox markets a broad line of black-and-white office copiers and duplicators.
The products range from a three-copy-per-minute personal copier to a 135-copy-
per-minute fully-featured duplicator to copiers designed for engineering and
architectural drawings up to 3 feet by 4 feet in size. Over the past three
years, the Company has introduced 28 new copiers and duplicators across the
entire spectrum of its product line. These products have improved ease of
use, reliability, copy quality, job recovery and ergonomics. Productivity-
enhancing features allow the preparation of completed sets of booklets:
printed on both sides of the paper, collated, covers and tabs inserted, and
stapled or bound; all accomplished in-line, without manual operations. Many
of the higher-volume products are equipped with modems which allow the Company
to remotely monitor copy quality and wear and tear, and schedule service
calls, frequently before the customers are aware of any deviation in product
performance.
Digital Publishing
The DocuTech family of digital publishers scans hard copy and converts it to
digital documents, or accepts digital documents directly from networked
personal computers or workstations. A user-friendly electronic cut-and-paste
workstation allows the manipulation of images or the creation of new
documents. For example, in only a few minutes, a page of word-processed text,
received over a network, can be combined with a photograph which is scanned
from hard copy and enhanced electronically: cropped, positioned precisely,
rotated, brightened or sharpened. Digital masters can be prepared in a
fraction of the time necessary to prepare offset plates, thereby allowing fast
turnaround time. DocuTech prints high-resolution (600 dots per inch) pages on
both sides of a sheet of paper at up to 135 impressions per minute. The in-
line finisher staples completed sets or finishes booklets with covers and
thermal-adhesive bindings. Because the finished document can be stored as a
digital document, hard copy documents can be printed on demand, or only as
required, thus avoiding the long production runs and high storage and
obsolescence costs associated with offset printing.
Electronic Printing
Xerox pioneered and continues to be a worldwide leader in electronic laser
printing, which combines computer, laser, communications and xerographic
technologies. The Company markets a broad line of robust printers with speeds
that range from eight pages per minute (ppm) to the industry's fastest cut-
sheet printer at 135 ppm. Many of these printers have simultaneous interfaces
that can be connected to multiple host computers as well as local area
networks.
Breakthrough technology allows printing, in a single pass through the
Company's highlight color printers, black-and-white plus one customer-
changeable color (as well as shades, textures and mixtures of each) at
production speeds up to 92 ppm. Other manufacturers' highlight color printers
require additional passes to add variable color, which increase cost, reduce
speed and reliability and introduce the possibility of color misalignment.
Productivity-enhancing features include printing collated multiple sets on
both sides of the paper, inserting covers and tabs, printing checks with
magnetic ink character recognition (MICR), and stapling; all on cut sheet
plain paper, with sizes up to 11 by 17 inches.
Color Copying and Printing
Xerox entered the digital color market in 1991 with the introduction of the
Xerox 5775 digital copier which is targeted at the production market segment.
The 5775 copies high resolution full color at 7.5 ppm, black-and-white at 30
ppm, and allows the colorizing of black-and-white documents. The Xerox 4700
is a highly cost-efficient, full-color 7.5 ppm electronic printer that also
prints black-and-white at 30 ppm. The 4700 prints complete collated documents
incorporating both black-and-white and color pages in a single step and at
optimum speeds. It offers a broad array of connectivity options for both the
office network and host computer environments. The MajestiK color copier
series, introduced in 1993, offers benchmark copy quality and
price/performance, and prints full color at 6 ppm and black-and-white at 36
ppm. The MajestiK series is targeted at the expanding market for color in the
office. In 1994, the Company introduced the Xerox 4900 color laser printer
for networked office groups printing at up to 1200 by 300 dpi resolution and
three ppm for full color and 12 ppm for black-and-white.
Other Products
Xerox also offers a wide range of other document processing products including
engineering copiers, ink-jet and electrostatic printers, facsimile products,
scanners, personal computer and workstation software, and integrated systems
solutions.
The Company also sells cut-sheet paper to its customers for use in their
Document Processing products.
Summary of Revenues by Product Category
The following table summarizes the Company's revenues by major product
category. The revenues for black-and-white copiers, digital products and
other products include equipment and supply sales, service and rental
revenues, and finance income. These revenues and the revenues from paper
sales exclude the impact of foreign currency exchange rate fluctuations which
are shown separately.
Year ended December 31 (in billions) 1994 1993 1992
Black-and-white copiers $ 9.4 $ 9.0 $ 8.9
Digital products 3.3 2.8 2.4
Other products 1.5 1.5 1.4
Paper 0.8 0.7 0.8
Foreign currency translation 0.1 0.2 0.8
Total revenues $15.1 $14.2 $14.3
Xerox Competitive Advantages
Although the document processing industry is highly competitive, the Company
believes that it enjoys significant competitive advantages because of its
dedication to customer satisfaction, its total quality management processes,
its substantial on-going investment in research and development, its large and
highly-skilled direct sales and service forces, and the creativity and
accountability of its business divisions.
Customer Satisfaction
The Company's highest priority is customer satisfaction. The Company's
research shows that satisfied customers are far more likely to repurchase
products and that the cost of selling a replacement product to a satisfied
customer is far less than selling to a "new" customer. The Company regularly
surveys customers on their satisfaction, measures the results, analyzes the
root causes of dissatisfaction, and takes steps to correct any problems.
Based on these surveys, customer satisfaction in the United States was over 90
percent in 1994. Similar results have been achieved in other important
markets.
Because of its emphasis on customer satisfaction, the Company offers a Total
Satisfaction Guarantee, a breakthrough in the document processing industry and
one of the simplest and most comprehensive offered in any industry: "If you
are not satisfied with our equipment, we will replace it without charge with
an identical model or a machine with comparable features and capabilities."
This guarantee applies for three years to equipment acquired from and
continuously maintained by Xerox or its authorized agents.
Quality
The Company was an early pioneer in total quality management and is the only
company to have won all three of the following prestigious quality awards:
the Malcolm Baldrige National Quality Award in the United States in 1989, the
European Quality Award in 1992 and the Deming Prize in Japan, won by Fuji
Xerox in 1980. In addition, the Company has won top quality awards in
Australia, Belgium, Brazil, Canada, Colombia, France, Hong Kong, India,
Ireland, Mexico, the Netherlands and the United Kingdom. The Company's
"Leadership Through Quality" program has enabled the Company to significantly
reduce its costs, accelerate the introduction of new products, improve
customer satisfaction and increase market share. Xerox products have been
consistently rated among the world's best by independent testing
organizations.
Research and Development
The Xerox research and development (R&D) program is directed toward the
development of new products and capabilities in support of the Company's
document processing strategy. The Company's research scientists are deeply
involved in the formulation of corporate strategy and key business decisions.
They regularly meet with customers and have dialogues with the Business
Divisions to ensure they understand customer requirements and are focused on
products that can be commercialized.
In 1994, R&D expense was $895 million compared with $883 million in 1993 and
$922 million in 1992. The Company expects to increase its investment in
technological development in 1995 and over the longer term to maintain its
premier position in the rapidly changing document processing market. The
Company's R&D spending is strategically coordinated with Fuji Xerox. The R&D
investment by Fuji Xerox was approximately $500 million in 1994, bringing the
total to almost $1.4 billion.
Marketing
Xerox document processing products are principally sold directly to users by
its worldwide sales force of approximately 13,000 employees. The Company also
markets through a network of independent agents, dealers, distributors and
value-added resellers and has arrangements with U.S. retail marketing
channels, including Sears, Office Depot, Office Max, Service Merchandise,
Staples, Wal-Mart, Costco, The Wiz, Price Club and MicroAge, to market low-end
products not generally suited for distribution through the Company's direct
sales force. These products are now sold through approximately 3,000 retail
stores.
In 1991, Xerox International Partners (XIP), a 51 percent-owned partnership,
was formed between Xerox and Fuji Xerox to supply printer engines to original
equipment manufacturers. XIP has also contracted to supply printer engines to
resellers.
Service
The Company has a worldwide service force of approximately 28,000 employees.
In the opinion of the Company, this direct service force is a significant
competitive advantage: the response times to customer calls are uniformly
low, the service force is continually trained on the Company's new products,
and the diagnostic equipment is state-of-the-art. Many of the Company's
products are equipped with modems which allow the Company to remotely monitor
copy quality and wear and tear, and schedule service calls, frequently before
the customers are aware of any deviation in product performance. Twenty-four-
hour-a-day, seven-day-a-week service is available in most metropolitan areas
in the United States. The Company is able to guarantee a consistent level of
service nationwide and worldwide because its service force is not focused
exclusively on metropolitan areas and it does not rely on independent local
dealers for service.
Organization
In 1992, the Company implemented a major change in the way it manages the
Document Processing business by establishing business divisions which work in
partnership with the geographically-based customer operations divisions:
United States Customer Operations, Rank Xerox in Europe, Americas Customer
Operations in Latin America, and Xerox of Canada.
The Company's business divisions have end-to-end responsibility for designing,
engineering, and marketing their products and services.
The customer operations divisions are responsible for all of the activities
relating to the customer, including sales, service, administration and support
for most of the Xerox products and services.
The Company believes that this organizational architecture combines the speed,
creativity, accountability and flexibility of a small company with the
economies of scale, resources and strategic vision of a large corporation.
Non-equipment Revenues
Non-equipment revenues from supplies, paper, service, rentals, facilities
management and other revenues, and income from customer financing, which
represented 65 percent of total revenues in 1994, are less volatile than
equipment sales revenues, and therefore provide significant stability to
overall revenues. Growth in these revenues is primarily a function of the
growth in the Company's installed population of equipment, usage and pricing.
The balance of the Company's revenues is derived from equipment sales. These
sales, which drive the non-equipment revenues, depend on the flow of new
products and are more affected by economic cycles.
Most Xerox customers have their equipment serviced by and use supplies sold by
the Company. The market for cut-sheet paper is highly competitive and revenue
growth is significantly affected by pricing. The Company's strategy is to
charge a spread over mill wholesale prices. Rental revenues have declined for
a number of years, reflecting customer trends toward outright purchase of
equipment, in part due to the attractive financing options offered by the
Company.
The Company offers its document processing customers financing of their
purchases of Xerox equipment primarily through XCC in the United States,
largely by wholly-owned financing subsidiaries in Europe, and through
divisions in Canada and Latin America. The Company's financing operations
have expanded over the past several years in recognition of customer demand
and the associated profit opportunities.
While competition for this business from banks and other finance companies
remains extensive, the Company actively markets its equipment financing
services on the basis of customer service, convenience and competitive rates.
Approximately 80 percent of U.S. equipment sales and 70 percent of European
equipment sales are financed through the Company. Over time, the growth rate
of financing income is expected to correspond to the growth rate of equipment
sales and trends in interest rates.
International Operations
The Company's international operations account for 48 percent of Document
Processing revenues. Xerox' largest interest outside the United States is the
"Rank Xerox Companies" in which the Company has an 80 percent financial
interest and The Rank Organisation Plc (RO) has a 20 percent financial
interest as of February 28, 1995. On February 28, 1995, Xerox paid RO 620
million pounds sterling, or approximately $970 million, to increase the Xerox
financial interest in Rank Xerox to about 80 percent from 67 percent.
Marketing and manufacturing operations are also conducted through joint
ventures in India and China. Marketing and manufacturing in the Americas
Customer Operations organization are conducted through subsidiaries or
distributors in 40 countries. Marketing and manufacturing in Japan and other
areas of the Pacific Rim, Australia and New Zealand are conducted by Fuji
Xerox.
Xerox' financial results by geographical area for 1994, 1993 and 1992, which
are presented on pages 34 and 62 of the Company's 1994 Annual Report to
Shareholders, are incorporated by reference in this document.
Insurance and Other Financial Services
In January 1993, the Company announced its decision to concentrate its
resources on its core document processing business and to disengage from IOFS,
which at that time included Talegen Holdings, Inc.(Talegen),Ridge Reinsurance
Limited (Ridge Re), The Van Kampen Merritt Companies, Inc. (VKM), Xerox
Financial Services Life Insurance Company (Xerox Life) and Furman Selz Holding
Corporation (Furman Selz). As the disengagement plan developed in 1993, Other
Financial Services (OFS) which included VKM, Xerox Life and Furman Selz
qualified as discontinued operations and are accounted for as such.
Contracts were signed to sell Constitution Re Corporation (CRC) to EXOR
America Inc. in 1994 and Xerox Financial Services Life Insurance Company
(Xerox Life) to a subsidiary of General American Life Insurance Company in
1995. Both sales will close after regulatory approvals. The Company will
continue to implement its strategy for divesting the remaining insurance
businesses in an orderly and disciplined way.
At December 1994, the Company's investment in Insurance amounted to $3,645
million, which excludes the effect of unrealized losses on investment
securities. The ultimate exit from the insurance businesses and the recovery
of the investment could take several years. During the disengagement process,
the Company will continue to be exposed to all the business risks of its
insurance businesses. The Company anticipates that future income or losses
from its insurance businesses may vary widely as the disengagement strategy is
implemented, due to, among other reasons, the recognition of proceeds of sales
or other forms of disengagement and the results from operations of the
remaining insurance businesses. No assurances can be given as to the timing
of the disengagement process, the amount and timing of proceeds of sales or
other forms of disengagement from insurance units or the impact the remaining
insurance businesses will have on the Company's total results from operations
during the disengagement process.
Status of Insurance
The Insurance segment includes Talegen, a holding company of seven property
and casualty insurance operating groups and three insurance related service
companies, Ridge Re and that portion of the Xerox Financial Services, Inc.
(XFSI) headquarters costs and interest expense associated with the continuing
business activities. In 1993, Talegen established and capitalized seven
insurance operating groups, each of which includes one or more legal insurance
entities (the "Insurance Companies"). Each of the Insurance Companies
maintains its own investment portfolio, loss reserves and capital. The
insurance department in every state was sent information and given the
opportunity to comment on the plan of recapitalization and legal
restructuring. Additionally, the recapitalization and legal restructuring was
approved by the insurance departments of all states in which Talegen's
Insurance Companies are domiciled. The objective of the Talegen restructuring
was to strengthen the insurance operating groups and facilitate the
realization of shareholder value.
The seven insurance operating groups and their areas of specialization are:
- Constitution Reinsurance is a New York-based treaty and facultative
reinsurer and had gross written premiums in 1994 of $545 million.
- Coregis is a Chicago based writer of tailored professional liability and
other property/casualty programs, programs for non-profit organizations and
public officials, and specialty coverages for schools and industry groups.
This insurance operating group has 1994 gross written premiums of $371
million.
- Crum & Forster Insurance is New Jersey based and is a national writer of
commercial property and casualty insurance through a select retail network of
independent custom agents. Gross written premiums in 1994 were $1,022
million.
- Industrial Indemnity is based in San Francisco and focuses on workers
compensation coverage and services primarily in western states. Gross written
premiums in 1994 were $370 million.
- The Resolution Group is based in Chicago and manages those Talegen
operations that no longer write new business and provides reinsurance
collection services.
- Viking is a non-standard personal automobile insurer with gross written
premiums of $152 million in 1994.
- Westchester Specialty Group, a wholesale commercial umbrella, excess
casualty and specialty property company based in Atlanta, had 1994 gross
written premiums of $334 million.
In connection with the 1993 restructuring and the regulatory approvals, XFSI
agreed to provide various forms of capital support to ensure that statutory
capital requirements of the newly established legal entities were met. The
capital contributions consisted of $235 million in cash, which was used to
purchase portfolio investments, and $100 million of XFSI promissory notes
(guaranteed by the Company). In connection with actions taken to strengthen
the Talegen balance sheet at the end of 1992, XFSI also provided support in
the form of $200 million in notes guaranteed by the Company.
XFSI also agreed that support would be provided in the form of excess of loss
reinsurance protection issued by Ridge Re, XFSI's wholly-owned Bermuda
reinsurance company established in 1992. XFSI is obligated to pay annual
premium installments of $49 million in the aggregate each year, plus finance
charges, payable for up to ten years, for coverage totaling $1,245 million,
which is net of 15 percent coinsurance. A total of eight years annual premium
installments remain to be paid as of December 31, 1994. The Company has
guaranteed the payment by XFSI of all such premiums.
In addition to XFSI's original contribution of $25 million to the
capitalization of Ridge Re, XFSI may be required, under certain circumstances,
to purchase over time additional redeemable preferred shares up to a maximum
of $301 million.
XFSI has guaranteed to the Talegen insurance companies that Ridge Re will meet
all of its financial obligations under all of the foregoing excess of loss
reinsurance issued to them.
In December 1994, a stock purchase agreement was signed with EXOR America Inc.
for its purchase of Constitution Re Corporation, a Talegen subsidiary, for
approximately $410 million subject to closing adjustments, which is
approximately the same as book value. The closing of the sale is subject to
customary closing conditions and regulatory approvals and is expected to close
during the first half of 1995.
Property and Casualty Reserves
Overview
Losses from claims and related loss adjustment expenses comprise the majority
of costs from providing insurance products and, therefore, reserves for unpaid
losses and loss expenses are the largest liabilities on a property and
casualty insurer's balance sheet. However, because insurance coverage is
provided for situations in which the certainty of loss cannot be predicted,
ultimate losses which will be incurred on policies issued are difficult to
estimate and are subject to constant reevaluation as new information becomes
available. Insurance companies utilize a variety of loss trending and
analysis techniques to estimate anticipated ultimate losses and the time
frames when claims are likely to be reported and paid. These patterns vary
significantly by type of insurance coverage and are affected by the economic,
social, judicial and weather-related/geological conditions in different
geographic areas.
In order to moderate the potential impact of unusually severe or frequent
losses, insurers often cede (i.e., transfer) a portion of their gross policy
premiums to reinsurers in exchange for the reinsurer's agreement to share
covered losses with the insurer. Although the ceding of insurance risk does
not discharge the original insurer from its primary liability to its
policyholder, the reinsurance company that accepts the risk assumes an
obligation to the original insurer. A contingent liability exists, however,
with respect to reinsurance ceded to the extent that any reinsuring company
might not be able to meet its obligations.
The net liability retained on individual risks varies by product and by the
nature of the risk. Insured liabilities in excess of retained limits are
reinsured either by treaty, wherein reinsurers agree in advance to provide
coverage above retained limits for specific products, or by facultative
arrangements, wherein reinsurance is provided for the individual risks based
on individual negotiations.
Over the policy period, as premiums are earned, a portion of the premiums are
set aside as gross reserves and charged to income for incurred but not
reported ("IBNR") losses in anticipation of claims which will be incurred, net
of anticipated salvage and subrogation. IBNR reserves also include amounts to
supplement case reserves, when established, to provide for potential further
loss development. In addition, gross reserves are also established for
internal and external loss adjustment expenses ("LAE") associated with
handling the claims inventory. These expenses are characterized as "allocated
LAE" when they are attributable to a specific claim or series of claims and
"unallocated LAE" when not similarly attributable. When a claim is reported,
case reserves are established on the basis of claim adjusters' evaluations and
other pertinent information available at the time. Legal defense costs that
can be assigned to a related claim file and can be included as part of the
loss under the contract are generally established as part of the gross case
reserve. Reinsurance recoverables on gross reserves are recorded for amounts
that are anticipated to be recovered from reinsurers and are determined in a
manner consistent with the liabilities associated with the reinsured policies.
Net reserves are gross reserves less anticipated reinsurance recoverables on
those reserves.
The effect of inflation on gross reserves is considered implicitly when
estimating the liability for unpaid losses and loss expenses. The effect of
inflation on individual case basis reserves implicitly reflects the direction
of economic price levels as they affect the individual claims being reserved.
Estimates of the ultimate value of unpaid claims are based in part on
historical data that reflect past inflation, as well as management's
assessment of severity and frequency, industry trends and related costs.
Ridge Re Coverage
Under the terms of the Ridge Re reinsurance coverage and subject to the limits
established for each insurance operating group, Ridge Re will reimburse the
Insurance Companies within their respective insurance operating group for 85%
of net increases, if any, to ultimate net unpaid loss and loss expenses and
uncollectible reinsurance reserves which may develop on its 1992 and prior
accident years as carried at December 31, 1992 (net of all salvage,
subrogation and other recoverables). The Ridge Re coverage is guaranteed by
XFSI, and, subject to certain commutation provisions, remains in effect until
all 1992 and prior accident year claims are paid. The following table
identifies the retention amount (i.e., the amount of carried net unpaid loss
and loss expenses and uncollectible reinsurance reserves at December 31, 1992
retained by the Insurance Companies within the insurance operating groups) and
the remaining reinsurance coverage at December 31, 1994 under the respective
Ridge Re contract. Cessions to Ridge Re, while beneficial to Talegen, do not
result in a benefit to the Insurance segment or consolidated Xerox accounts.
Ridge Re Information
December 31, 1994 Retention Contractual Cumulative Remaining
(in millions) Amount[1] Coverage[2] Ceded Losses[2] Coverage[2]
Constitution Reinsurance $ 591 $ 43 $ - $ 43
Coregis $ 585 $ 119 $ - $ 119
Crum & Forster Insurance $2,263 $ 234 $ 5 $ 229
Industrial Indemnity $1,157 $ 127 $ - $ 127
The Resolution Group $1,199 $ 578 $ 28 $ 550
Viking $ 134 $ 17 $ - $ 17
Westchester Specialty
Group $ 755 $ 127 $ 20 $ 107
[1] Retention amounts equal the carried net unpaid losses and loss expenses
and uncollectible reinsurance reserves as of December 31, 1992.
[2] Coverage and ceded amounts are net of 15% insurance operating group
coinsurance amounts (i.e., for every dollar of covered loss in excess of
the retention amount, the affected insurance company will be able to cede
(recover) eighty-five cents from Ridge Re)
The following sections of this discussion provide further details related to
the reserving practices and the specific reserve levels of the Insurance
Companies within Talegen's insurance operating groups. Due to the unique
complexities and uncertainties related to asbestos-related, hazardous waste
and other latent or long-tail claims, information regarding these claim
categories is separately discussed, although it is the policy of Talegen not
to disclose established case reserves on specific claims.
Overall Reserves
The following table sets forth gross unpaid losses and loss expenses,
reinsurance recoverables on unpaid losses and loss expenses and the resultant
net unpaid losses and loss expenses for the Insurance Companies included in
each insurance operating group at December 31, 1994 and 1993:
Unpaid Losses and Loss Expenses
1994 1993
Gross Reinsurance Net Gross Reinsurance Net
(in millions) Reserves Recoverable Reserves Reserves Recoverable Reserves
Constitution
Reinsurance $ 881 $ 200 $ 681 $ 883 $ 202 $ 681
Coregis 995 271 724 992 330 662
Crum & Forster
Insurance 2,941 768 2,173 3,171 872 2,299
Industrial
Indemnity 1,445 188 1,257 1,586 213 1,373
The Resolution
Group 1,680 983 697 2,576 1,720 856
Viking 97 - 97 124 6 118
Westchester
Specialty Group 1,225 485 740 1,272 512 760
Ceded balances to
affiliates (451) (451) - (920) (920) -
Total $8,813[1] $2,444 $6,369[1] $9,684 $2,935 $6,749
[1] Balance excludes cessions to Ridge Re of $53 million.
The overall decrease in gross reserves is primarily the result of actions
taken over the past several years to reduce exposures in underperforming and
non-strategic business segments. Reinsurance recoverables have decreased due
to the underlying reduction in gross reserves, increased collection of
recoverable balances and an increase in business retained by the Insurance
Companies. Gross and net reserves at December 31, 1992 were $10,657 million
and $6,869 million, respectively. Due to its mission of managing run-off
business, the most significant decrease in overall gross and net reserves has
occurred within The Resolution Group. In 1994, Insurance Companies within the
Westchester Specialty Group, The Resolution Group and the Crum & Forster
Insurance operating groups strengthened net reserves by approximately $40
million, $33 million and $8 million, respectively, for development on 1993 and
prior accident year reserves. Of these amounts, $20 million, $28 million and
$5 million, respectively, were ceded to Ridge Re. No material adjustments
were made to net reserves in 1993.
Monitoring of Insurance Reserves
The insurance operating groups continually monitor the gross and net reserves
of their Insurance Companies for business written in both current and prior
years, and Talegen senior management reviews these reserves on a periodic
basis. In addition, these reserves are reviewed and certified on an annual
basis by an outside actuary appointed by the Insurance Companies. Overall
reserve levels are impacted primarily by the types and amounts of insurance
coverage currently being written and the trends developing from newly reported
claims and claims which have been paid and closed. Adjustments are made to
reserves in the period they can be reasonably estimated to reflect evolving
changes in loss development patterns and various other factors that affect
ultimate claim settlement costs. Such factors include increased damage awards
by the courts, changes in judicial interpretations of legal liability for
asbestos-related, hazardous waste and other latent or long-tail claims,
changes in judicial interpretation of the scope of coverage provided by
general liability and umbrella policies for "advertising injury," particularly
in the area of "unfair competition," and other recently advanced new theories
of liability. Many of these judicial interpretations are still evolving.
Generally, the greater the projected time to settlement, the greater the
complexity of estimating ultimate claim costs and the more likely that such
estimates will change as new information becomes available.
Use of Reinsurance and Management of Reinsurance Collection
Most of the Insurance Companies made significant use of reinsurance during the
1970's and early 1980's. Since that time, the Insurance Companies have
generally increased the portion of business they retain while reducing the
number of reinsurers used for their reinsurance contracts. Accordingly, in
the aggregate, net reserves as a percent of gross reserves increased from 65%
at December 31, 1992 to 72% at December 31, 1994, and the percent of written
premiums ceded to reinsurers to gross written premiums decreased from 21% in
1992 to 16% in 1994. Additionally, at December 31, 1994 the Insurance
Companies had current and future reinsurance recoverables due from
approximately 700 reinsurers for all policy years. However, in 1994 more than
70% of premiums ceded were placed with approximately 30 reinsurers.
Talegen has a reinsurance security committee composed of senior management who
approve those reinsurers with whom Talegen will do business. Based upon the
review of financial condition and assessment of other available information,
the Insurance Companies maintain an allowance for uncollectible amounts due
from troubled reinsurers as reported in Note 13 on page 68 of the Company's
1994 Annual Report to Shareholders. The balance of reinsurance recoverable is
considered to be valid and collectible.
The potential uncollectibility of ceded reinsurance is an industry-wide issue.
With respect to the management of recoveries due from reinsurers, the
Insurance Companies operate within common guidelines on the early
identification of potential collection problems and assign these cases to a
specialized unit with The Resolution Group staffed by "work-out" experts.
This unit aggressively pursues collection of reinsurance recoverables through
mediation, arbitration and, where necessary, litigation to enforce a
contractual right against reinsurers. Nevertheless, periodically, it becomes
necessary for management to adjust reserves for potential losses to reflect
their ongoing evaluation of developments which affect recoverability,
including increased damage awards and the severe financial difficulties that
some reinsurers are experiencing.
Effects of Restructuring on Reserves
In 1992, as part of the announced Talegen restructuring plan and related
balance sheet strengthening actions, reserves were strengthened by $880
million on a pre-tax basis. Talegen, after completing a detailed review of
its outstanding reinsurance recoverables, in the fourth quarter of 1992 wrote-
off $516 million in reinsurance recoverables due from approximately 600
reinsurers against the allowance for doubtful reinsurance accounts (including
$174 million for paid reinsurance recoverables). Adjustments to the reserves
in 1993 pursuant to the restructuring were not material.
Statutory and GAAP Reporting of Net Unpaid Losses and Loss Expenses
The liability for loss and loss expense reserves required by generally
accepted accounting principles ("GAAP") includes various adjustments from the
liability reported in accordance with Statutory Accounting Practices ("SAP").
Because not all GAAP adjustments can be associated with subsequent
developments of the liabilities on other than an arbitrary basis, developments
on the loss and loss expense reserve development table are prepared in
accordance with SAP.
Loss Development Data
In Note 13 on page 68 of the Company's 1994 Annual Report to Shareholders, the
net liability for unpaid losses and loss expenses is reconciled for each of
the years in the three-year period ended December 31, 1994. Included therein
are current year and prior year development data.
As a result of claim activity during 1994 and after reflection of prior
experience, it is management's judgment that the total liability for unpaid
losses and loss expenses at December 31, 1994 is reasonably stated.
The loss and loss expense reserve development table illustrates the
development of statutory balance sheet liabilities for 1984 through 1994. The
first line of the table is the estimated liability for unpaid losses and loss
expenses, net of reinsurance recoverable on unpaid losses, recorded at the
balance sheet date for each year. The lower section of the table shows the
updated amount of the previously recorded liability based on experience as of
the close of each succeeding year. The estimate is increased or decreased as
more information becomes known about the claims until all claims are settled.
Deficiencies or redundancies represent aggregate changes in estimates for all
prior calendar years. The effect on income for the latest three years is
shown in Note 13 on page 68 of the Company's 1994 Annual Report to
Shareholders. These changes in estimates have been reflected in Talegen's
calendar year operating results. As the Insurance Companies recognize
adjustments to reserves for changes in loss development patterns and various
other factors, such as social and economic trends and known changes in
judicial interpretation of legal liability, in the period in which they become
known, it is not appropriate to extrapolate future redundancies or
deficiencies based solely on this table.
Talegen Holdings, Inc.
Loss and Loss Expense Reserve Development
Year ended December 31 (in millions) 1984 1985 1986 1987
Liability for unpaid losses and loss
expenses - GAAP (net of reinsurance) $ 2,729 $ 3,589 $ 4,276 $ 5,139
Increase (decrease) for GAAP adj. 8 (148) (256) (241)
Liability for unpaid losses and loss
expense - SAP (net of reinsurance) 2,737 3,441 4,020 4,898
Paid (cumulative) as of:
End of year - - - -
One year later 931 1,133 1,132 1,365
Two years later 1,611 1,946 2,039 2,483
Three years later 2,182 2,594 2,854 3,258
Four years later 2,598 3,197 3,391 3,824
Five years later 2,979 3,601 3,798 4,493
Six years later 3,238 3,892 4,360 4,659
Seven years later 3,391 4,380 4,470 4,927
Eight years later 3,793 4,450 4,675
Nine years later 3,828 4,624
Ten years later 3,987
Liability estimated as of:
End of year 2,737 3,441 4,020 4,898
One year later 3,072 3,798 4,383 4,974
Two years later 3,387 4,158 4,416 5,365
Three years later 3,582 4,125 4,797 5,670
Four years later 3,555 4,515 5,207 5,577
Five years later 3,828 4,896 5,087 6,332
Six years later 4,125 4,863 5,786 6,357
Seven years later 4,055 5,490 5,841 6,476
Eight years later 4,550 5,587 5,991
Nine years later 4,687 5,772
Ten years later 4,872
(Deficiency) redundancy $(2,135) $(2,331) $(1,971) $(1,578)
Gross liability - end of year
Reinsurance recoverable
Net liability - end of year
Gross re-estimated liability - one
year later
Re-estimated recoverable - one
year later
Net re-estimated liability - one
year later
Gross re-estimated liability - two
years later
Re-estimated recoverable - two
years later
Net re-estimated liability - two
years later
Gross cumulative deficiency
1988 1989 1990 1991 1992 1993 1994
$ 5,613 $ 6,119 $ 6,429 $ 6,379 $ 6,874 $ 6,753 $ 6,369
(208) (215) (287) (299) (370) (254) (190)
5,405 5,904 6,142 6,080 6,504 6,499 6,179
- - - - - - -
1,588 1,675 1,707 1,830 1,294 1,542
2,667 2,827 3,085 2,730 2,488
3,484 3,879 3,663 3,657
4,284 4,228 4,354
4,486 4,746
4,885
5,405 5,904 6,142 6,080 6,504 6,499 6,179
5,709 6,110 6,255 6,972 6,492 6,491
5,908 6,090 7,082 6,904 6,528
5,830 6,903 6,968 6,954
6,604 6,825 7,022
6,556 6,910
6,684
$(1,279) $(1,006) $ (880) $ (874) $ (24) $ 8 $ -
$10,475 $ 9,515 $ 8,828
3,971 3,016 2,649
6,504 6,499 6,179
10,454 9,569
3,962 3,078
6,492 6,491
10,483
3,955
6,528
$ (8) $ (54) $ -
Asbestos-Related, Hazardous Waste and Other Latent or Long-Tail Claims
Claims resulting from asbestos-related, hazardous waste and other latent or
long-tail losses have provided unique challenges to the insurance industry.
The possibility that these claims would emerge was often not recognized or
contemplated at the time the policies were written, and traditional actuarial
reserving methodologies have not always been useful in accurately estimating
ultimate losses. Asbestos-related claims were the first type of such
exposures to cause significant losses to the insurance industry. Because case
law for asbestos-related injuries is now reasonably developed and the number
of open claims has been declining, the remaining exposure and related
uncertainty to the Insurance Companies are also decreasing. Hazardous waste
claims have been the second major type of such claims to emerge and
significantly impact the insurance industry. Inconsistent Federal and State
case law related to hazardous waste claims has compounded the industry's
difficulties in adequately understanding and reserving for these complex
exposures. Other latent or long-tail exposures such as repetitive stress,
lead paint and surgical breast implants are the latest type of such liability
to emerge. These claim types also are not suitable for traditional actuarial
reserving techniques due to significant uncertainties as to how legal issues
will develop. As judicial patterns emerge through the appellate process and
remove uncertainties related to asbestos-related, hazardous waste and other
latent or long-tail claims, additional liabilities and reinsurance
recoverables could arise. In the aggregate, reserves for asbestos-related,
hazardous waste and other latent or long-tail claims comprise 10% and 5% of
total gross and net reserves, respectively, of the Insurance Companies at
December 31, 1994.
Total reserves for asbestos bodily injury, asbestos-in-building, hazardous
waste and other latent or long-tail claims at December 31, 1994 are as
follows:
Total Reserves[1] by Claim Category
Asbestos Asbestos Other
Bodily -in- Hazardous Latent or
Injury Building Waste Long-Tail Total
(in millions) Gross Net Gross Net Gross Net Gross Net Gross Net
Constitution Reinsurance $ 66 $ 20 $ - $ - $ 79 $ 32 $ - $ - $145 $ 52
Crum & Forster Insurance 58 40 - - 79 61 110 57 247 158
Coregis - - - - 2 2 - - 2 2
Industrial Indemnity - - - - - - - - - -
The Resolution Group 170 17 21 2 101 36 48 2 340 57
Viking - - - - - - - - - -
Westchester Specialty
Group 38 11 45 1 34 21 9 1 126 34
Total $332 $ 88 $ 66 $ 3 $295 $152 $167 $ 60 $860 $303
[1] Included are case, IBNR and allocated loss adjustment expense reserves.
The vast majority of claims in the above areas have resulted from policies
covering corporate property and casualty insurance, thus insurance operating
groups whose Insurance Companies have not underwritten (or reinsured) this
type of business generally do not have these types of claims. Although
Insurance Companies within Coregis are currently underwriting certain
commercial property and casualty business, these companies did not underwrite
any significant volume of business prior to 1986 and thus have not had many
asbestos bodily injury or hazardous waste claims as most such claims for the
insurance industry have originated from accident years prior to 1986.
In 1985, Talegen established a stand-alone unit to centrally handle asbestos-
related, hazardous waste and certain other latent or long-tail claims. This
unit was established as a separate service company of Talegen and has been
recently named Envision Claims Management Corporation ("Envision"). Envision
is currently engaged in working on claims for the Insurance Companies within
the Crum & Forster Insurance, Coregis, The Resolution Group and Westchester
Specialty Group insurance operating groups. The objectives of Envision are to
bring expertise to this highly specialized area, promote consistency in claim
administration and reserving practices and judiciously work through and close
such claims on behalf of the Insurance Companies. Since January 1, 1993,
nearly twice as many claims have been closed by Envision as have been opened,
causing an overall 33% reduction in total applicable claims outstanding for
the Insurance Companies during that period.
Following is an expanded discussion of historical reserve development with
respect to asbestos-related, hazardous waste and other latent or long-tail
claims. Included in the discussion of hazardous waste and other latent or
long-tail claims is information pertaining to policy limits on open claims, or
the theoretical aggregate of potential indemnity loss on all policies where
the Insurance Company has been notified of a possible claim. However, policy
limit information has not been, and management of Talegen and the Insurance
Companies does not believe it will be, a useful predictor of future claim
payments for asbestos-related, hazardous waste and other latent or long tail
claims.
Generally, a claim is reported to the Insurance Company after the insured has
been notified by a third party of a potential loss situation. For hazardous
waste claims, many of the reported claims are from insureds who have been
notified of a possible loss, no matter how minor a role the insured played in
the act leading to the loss. It has been the experience of the Insurance
Companies (and industry experience in general) that in such instances the
insured will often pay only minimal losses or no loss.
Assuming that the insured has paid a loss, the Insurance Company then makes
the determination as to whether the loss is covered. If there is a dispute on
the loss coverage, the Insurance Companies or policyholder generally seeks a
declaratory judgment ruling, asking a court to determine whether or not the
policy covers the loss in question. From a historical perspective, only a
relatively small percentage of declaratory judgment actions have resulted in
the Insurance Companies being required to pay the claim, although this pattern
is not meant to be representative of past or future aggregate payment amounts
resulting from declaratory judgments.
Assuming that the claimed loss is covered, any payment is generally only a
small amount of the total available policy limits because many of the related
policies written by the Insurance Companies are high excess policies where the
loss needs to exceed a high dollar amount before their respective "layer" of
coverage is impacted.
Asbestos Bodily Injury Claims
Claims began to emerge alleging bodily injury due to asbestos exposure in the
1970's, and the insurance industry became involved in litigation over
insurance coverage issues with manufacturers, distributors, suppliers, and
indirect users of asbestos containing products at that time. The judicial and
legislative interpretations of coverage tended to expand the definition of
covered losses beyond what insurers commonly believed to be the intent of the
policies. However, over time, case law in this area has become fairly well
established. The Insurance Companies believe that most of the litigation over
asbestos bodily injury coverage issues has now been resolved and appropriate
reserves have been established for these known exposures. Although it is
difficult to estimate when the pending asbestos bodily injury claims will be
paid and closed, the overall inventory of such claims has been declining.
From a historical perspective, of the total open claims at the end of 1991,
approximately 48% had been closed at December 31, 1994.
The following table sets forth gross and net unpaid losses and allocated LAE
related to asbestos bodily injury claims of the Insurance Companies:
Asbestos Bodily Injury Reserve Information
1994 1993
Year ended December 31 (in millions) Gross Net Gross Net
Beginning case reserves $ 250 $ 40 $ 485 $ (128)
Claim payments (recoveries) - Owens
Corning Fiberglass ("OCF" claims) - - 183 (133)[1]
Other claim payments (recoveries) 47 - 61 (2)
Case incurred losses 21 1 9 33 [1]
Ending case reserves 224 41 $ 250 $ 40 [1]
1994 IBNR/Allocated LAE reserves [2] 108 47 N/A N/A
1994 total reserves [2] $ 332 $ 88 N/A N/A
Allocated LAE payments (recoveries) $ 10 $ 19 $ (6) $ (29)
1991 and Prior
1992 Periods
Gross Net Gross Net
Beginning case reserves $ 741 $ 21 $ - $ -
Claim payments (recoveries) - Owens
Corning Fiberglass ("OCF" claims) 243 139 288 4
Other claim payments (recoveries) 34 8 160 42
Case incurred losses 21 (2)[1] 1,189 67
Ending case reserves $ 485 $ (128)[1]$ 741 $ 21
1994 IBNR/Allocated LAE reserves [2] N/A N/A N/A N/A
1994 total reserves [2] N/A N/A N/A N/A
Allocated LAE payments (recoveries) $ 52 $ (9) $ 324 $ 81
[1] Loss and reserve data for 1992 reflects a reserving practice specific to
the Owens Corning Fiberglass ("OCF") claims (discussed subsequently) where
case reserves were reduced by reinsurance receivables on paid losses.
Normally, reinsurance receivables are shown on a "gross" basis, that is,
separately stated on the balance sheet. This practice for the OCF claims
resulted in an offsetting understatement of case reserves and reinsurance
recoverables. This practice was reversed in 1993.
[2] Beginning in 1994, IBNR/Allocated LAE reserves have been allocated to
certain claim categories; prior to 1994, similar allocations were not
made, thus the data for 1993 and prior years has been marked as not
available ("N/A") in the table.
The largest asbestos bodily injury claims have originated from policies issued
to Owens Corning Fiberglas ("OCF") who manufactured and distributed insulation
containing asbestos. These policies were issued or assumed by an Insurance
Company within The Resolution Group. Numerous claims alleging bodily injury
through exposure to asbestos were filed against OCF during the past two
decades. Included in the preceding table are cumulative paid losses from
these policies of approximately $714 million and $10 million and allocated LAE
of approximately $310 million and $14 million on a gross and net basis,
respectively, for 1994 and prior years resulting in a total paid amount of
$1,024 million and $24 million on a gross and net basis, respectively.
Management of The Resolution Group and Talegen believe that all significant
losses have been paid on this coverage. Of the approximately $1 billion in
reinsurance believed to be appropriately recoverable from these claims, $682
million has been collected and $168 million has either been written off or
reserved through the allowance for uncollectible reinsurance, resulting in a
remaining net recoverable balance of $150 million at December 31, 1994. See
discussion of the status of two separate lawsuits pertaining to reinsurance
recoverable on OCF claims, of which one has been substantially settled, in
Note 18 on Page 79 of the Company's 1994 Annual Report to Shareholders.
Asbestos-In-Buildings Claims
In addition to bodily injury claims, asbestos-in-building claims have been
brought against certain Insurance Companies of the Talegen insurance operating
groups seeking reimbursement for the expense of replacing insulation material
and other building components made of asbestos. The Insurance Companies have
generally contested coverage to the extent that product liability insurance
does not cover replacement costs unless there has been property damage, as
defined in the policies, to the buildings in which asbestos containing
products were installed. Sufficient case law has not yet been established to
determine the extent to which the courts will interpret the policies
consistently with this position, and the theories put forth by the courts have
varied considerably to support the few payments made by insurers to date for
asbestos-in-buildings property damage claims. Although it is difficult to
estimate when the pending asbestos-in-buildings claims will be resolved and
closed, the claims inventory has been declining, similar to asbestos bodily
injury claims. Of the total open claims at the end of 1991, approximately 48%
had been closed at December 31, 1994.
The following table sets forth gross and net unpaid losses and allocated LAE
related to asbestos-in-buildings claims of the Insurance Companies:
Asbestos-In-Buildings Reserve Information
1994 1993
Year ended December 31 (in millions) Gross Net Gross Net
Beginning case reserves $ 61 $ 4 $ 59 $ 4
Claim payments (recoveries) - Celotex - - - -
Other claim payments (recoveries) 3 - 1 1
Case incurred losses 8 (1) 3 1
Ending case reserves 66 3 $ 61 $ 4
1994 IBNR/Allocated LAE reserves [1] - - N/A N/A
1994 total reserves [1] $ 66 $ 3 N/A N/A
Allocated LAE payments $ - $ - $ - $ -
1991 and Prior
1992 Periods
Gross Net Gross Net
Beginning case reserves $ 64 $ 7 $ - $ -
Claim payments (recoveries) - Celotex 5 3 - -
Other claim payments (recoveries) - - - -
Case incurred losses - - 64 7
Ending case reserves $ 59 $ 4 $ 64 $ 7
1994 IBNR/Allocated LAE reserves [1] N/A N/A N/A N/A
1994 total reserves [1] N/A N/A N/A N/A
Allocated LAE payments $ - $ - $ - $ -
[1] Beginning in 1994, IBNR/Allocated LAE reserves have been allocated to
certain claim categories, prior to 1994, similar allocations were not
made, thus the data for 1993 and prior years has been marked as not
available ("N/A") in the table.
The most significant reported asbestos-in-building claims relate to two
umbrella contracts issued by Westchester Fire Insurance Company ("Westchester
Fire"), an Insurance Company within the Westchester Specialty Group, to
Celotex, et al. covering the 1982 and 1983 policy years, with a combined gross
and net limit of $50 million and $2 million, respectively. Since December
1990, the Celotex Companies have been involved in bankruptcy reorganization
litigation in the U.S. Bankruptcy Court in Tampa, Florida. The court has
temporarily stayed proceedings in all of the underlying asbestos bodily injury
and asbestos-in-buildings claims. Westchester Fire and Talegen believe that
adequate reserves have been established for this exposure.
Hazardous Waste Claims
Hazardous waste claims encompass costs for pollution clean-up, bodily injury
and property damage. Significant uncertainties exist with respect to
estimating the Insurance Companies' exposure to hazardous waste claims. The
uncertainty primarily results from lack of historical data, long delays in
reporting claims, difficulty in identifying potential claimants and complex
legal and coverage issues that have been further complicated by inconsistent
conclusions reached by the courts. Due to the above, it is very difficult to
estimate when existing hazardous waste claims will close. However, from a
historical perspective, of the total open claims at the end of 1991,
approximately 66% had been closed at December 31, 1994.
The following table sets forth gross and net unpaid losses and allocated LAE
related to hazardous waste claims of the Insurance Companies:
Hazardous Waste Reserve Information
1994 1993
Year ended December 31 (in millions) Gross Net Gross Net
Beginning case reserves $ 43 $ 22 $ 22 $ 14
Claim payments (recoveries) 28 17 21 12
Case incurred losses 35 20 42 20
Ending case reserves 50 25 $ 43 $ 22
1994 IBNR/Allocated LAE reserves [1],[2] 243 125 N/A N/A
1994 total reserves [1],[2] $ 293 $ 150 N/A N/A
Allocated LAE payments $ 20 $ 17 $ 20 $ 17
1991 and Prior
1992 Periods
Gross Net Gross Net
Beginning case reserves $ 23 $ 14 $ - $ -
Claim payments (recoveries) 9 4 52 24
Case incurred losses 8 4 75 38
Ending case reserves $ 22 $ 14 $ 23 $ 14
1994 IBNR/Allocated LAE reserves [1],[2] N/A N/A N/A N/A
1994 total reserves [1],[2] N/A N/A N/A N/A
Allocated LAE payments $ 17 $ 14 $ 38 $ 29
[1] Totals exclude $2 million of reserves for Mt. Airy Insurance Company, a
subsidiary within the Coregis insurance operating group. Hazardous waste
exposures for Coregis are not significant primarily because 1986 was the
first year significant business volume was written by Insurance Companies
within the Coregis insurance operating group.
[2] Beginning in 1994, IBNR/Allocated LAE reserves have been allocated to
certain claim categories, prior to 1994, similar allocations were not
made, thus the data for 1993 and priors has been marked as not available
("N/A") in the table.
The principal federal statute that requires cleanup of environmental damage is
the Comprehensive Environmental Response, Compensation and Liability Act
("Superfund"), passed in 1980. It imposes liabilities on "Potentially
Responsible Parties," subjecting them to liability for clean-up costs
regardless of fault, time period and relative contribution of pollutants.
Superfund is subject to funding authorization that expires in December 1995.
The current administration has put forth a proposal to reform Superfund that
would create a government fund (estimated at $8.1 billion) used to clean up
"National Priority Listed" ("NPL") sites.
The last draft of the proposed law issued by the Senate Finance Committee
(dated September 27, 1994), if it had been adopted, would have raised the fund
through a combination of retrospective and prospective taxes for primary
insurers and a retrospective tax for reinsurers. The 103rd Congress did not
pass the reform bill. Because there is new legislative leadership in both the
House and the Senate, among other reasons, management of Talegen does not
believe the proposed law will pass the 104th Congress as last drafted.
Accordingly, it is not possible to predict what effect the future legislative
changes or reauthorization of Superfund will have on Talegen's future results.
Although it is not likely the law will be passed as last drafted, the
Insurance Companies continue to receive requests from insurance company rating
agencies and other interested parties regarding the percentage of hazardous
waste claims and reserves involving NPL sites as well as estimates of taxes
under the proposed law. Because of these requests, the following table
provides the Insurance Companies estimate of such information at December 31,
1994:
NPL Information
Percentages of Total Applicable Hazardous Waste
Amounts that Include NPL Sites; Aggregate Tax
Amounts and Average Attachment Points in millions.
Policy Excess Policies
Gross Limits on Average
Open Case Primary Policy Attachment
Claims Reserves Policies[3] Limits[3] Point[4]
Constitution Reinsurance [1] N/A N/A N/A N/A N/A
Coregis [2] N/M N/M N/M N/M N/M
Crum & Forster Insurance 25% 47% 53% 38% $ 38
Westchester Specialty Group 48% 20% 19% 46% $ 16
The Resolution Group 55% 70% 50% 71% $ 42
Estimates of Aggregate
Proposed Superfund Tax
Retrospective[6] Prospective[7]
Constitution Reinsurance [1] $ 19 N/A[5]
Coregis [2] $ 1 $ 15
Crum & Forster Insurance $ 59 $ 67
Westchester Specialty Group $ 4 $ 23
The Resolution Group $ 5 $ 2
[1] Specific NPL information has generally not been submitted by primary
insurers to Constitution Reinsurance thus the information has been marked
as not available ("N/A") in the table.
[2] Due to the relatively insignificant number of reported hazardous waste
claims and resultant case reserves, this information is not meaningful
("N/M") to Coregis.
[3] Exposed limits are defined as total policy limits on open claims less
losses paid-to-date at December 31, 1994.
[4] The attachment point on an excess of loss insurance policy represents the
loss dollar amount at which point the insurance policy would respond in
accordance with the terms of coverage granted. For example, if the
attachment point on an excess of loss policy is $30 million, insurance
coverage on that policy would not be exposed to a loss unless the total
loss related to the insured event for that year of coverage exceeds $30
million. This information has been estimated based on a sample of
policies from open applicable claims.
[5] Reinsurers are not subject to a prospective tax in the proposed law.
[6] The retrospective tax for primary insurers under the law would have been
based on the insurers proportionate share of commercial multiple peril and
other liability lines of business written between 1968 and 1985 and, for
reinsurers, would have been based on their net premiums written between
1968 and 1985. This information has been estimated based on a sample of
policies from open applicable claims.
[7] The prospective tax for primary insurers would have been based on primary
insurers' proportionate share of premiums written for the next ten years.
Other Latent or Long-Tail Claims
A diversity of claims have been filed that assert injury or loss due to
exposure to a substance or device from a prolonged period. The following
table sets forth gross and net losses and allocated LAE related to other
latent or long-tail claims of the Insurance Companies:
Other Latent or Long-Tail Claims Reserve Information
1994 1993
Year ended December 31 (in millions) Gross Net Gross Net
Beginning case reserves $ 131 $ 103 $ 185 $ 97
Claim payments (recoveries) - Farm
and Home (23) 33 49 (11)
Other claim payments (recoveries) 7 4 11 4
Case incurred losses (44)[2] (28)[2] 6 (1)
Ending case reserves 103 38 $ 131 $ 103
1994 IBNR/Allocated LAE reserves [1] 64 22 N/A N/A
1994 total reserves [1] $ 167 $ 60 N/A N/A
Allocated LAE payments $ 46 $ 32 $ 4 $ 10
1991 and Prior
1992 Periods
Gross Net Gross Net
Beginning case reserves $ 145 $ 81 $ - $ -
Claim payments (recoveries) - Farm
and Home 145 121 41 5
Other claim payments (recoveries) 19 5 26 7
Case incurred losses 204 142 212 93
Ending case reserves $ 185 $ 97 $ 145 $ 81
1994 IBNR/Allocated LAE reserves [1] N/A N/A N/A N/A
1994 total reserves [1] N/A N/A N/A N/A
Allocated LAE payments $ 6 $ 6 $ 45 $ 17
[1] Beginning in 1994, IBNR/Allocated LAE reserves have been allocated to
certain claim categories, prior to 1994, similar allocations were not
made, thus the data for 1993 and prior years has been marked as not
available ("N/A") on the table.
[2] Benefit in incurred losses originated from a reallocation in Farm & Home
case reserves in 1994 where the reduction in unpaid loss and loss expense
reserves was offset by a write-off to paid loss receivables which thus
resulted in no net gain or loss.
As shown in the preceding reserve table, a significant amount of paid claims
relate to claims associated with Farm & Home Savings Association ("Farm and
Home"), the developer of the Southbend subdivision in Friendswood, Texas that
is located close to the Brio superfund site. See discussion of litigation
associated with these claims in Note 18 on Page 79 of the Company's 1994
Annual Report to Shareholders.
Certain Insurance Companies have written excess of loss policies with parties
that have been named in various lawsuits involving surgical breast implants.
Gross and net issued policy limits for allegedly implicated policies, grouped
by range of the attachment point for the excess of loss policies, are as
follows at December 31, 1994:
Surgical Breast Implant
Issued Policy Limits Grouped by Attachment Point
$0-5 Million[1] $5-20 Million[1] >$20 Million[1]
(in millions) Gross Net Gross Net Gross Net
Crum & Forster Insurance $ 6 $ 6 $ 3 $ - $ 26 $ 5
Westchester Specialty Group 5 3 25 17 85 22
The Resolution Group 63 3 106 6 162 4
Total $ 74 $ 12 $134 $ 23 $273 $ 31
[1] The attachment point on an excess of loss insurance policy represents the
loss dollar amount at which point the insurance policy would respond in
accordance with the terms of coverage granted. For example, if the
attachment point on an excess of loss policy is $30 million, insurance
coverage on that policy would not be exposed to a loss unless the total
loss related to the insured event for that year of coverage exceeds $30
million.
Major surgical breast implant manufacturers and the principal plaintiffs'
attorneys have entered into a "Global Settlement" which is reported to cost
the defendants $4.25 billion over a thirty year period. The trial court has
approved the Global Settlement, however, it is expected that all aspects of
the settlement will be appealed to a higher court when the trial court has
concluded all proceedings. Additionally, although the Global Settlement has
been approved by the plaintiffs, the Insurance Companies have generally not
been presented with claims. Should claims be asserted, the allegedly affected
Insurance Companies are investigating various policy coverage issues. For
example, while over half the global settlement amount may represent bodily
injury claims as defined in the contracts, the insurance industry does not
agree that the remaining portion of the fund represents bodily injury caused
by a covered occurrence as defined in the contracts and hence is excludable
from coverage. Plaintiffs can opt out of the settlement and pursue other
traditional remedies if they so elect within prescribed time frames.
Range of Reasonably Possible Losses on Known Claims
The following table compares the internal estimates of the range of ultimate
net losses that are considered reasonably possible for known asbestos bodily
injury, asbestos-in-building, hazardous waste and other latent or long-tail
claims to total net reserves for these claim categories at December 31, 1994:
Range of Net Unpaid Losses and Allocated
Loss Adjustment Expense Reserves on Known
Claims Compared to Total Net Reserves [1]
Range of Net Unpaid Losses and Allocated Loss
Adjustment Expenses on Known Claims
Asbestos Asbestos Other Total
Bodily -in- Hazardous Latent or Net
Injury Building Waste Long-Tail Total Reserves
(in millions) Low High Low High Low High Low High Low High [1]
Constitution
Reinsurance $ 5 $ 20 $ - $ - $ 10 $ 30 $ - $ - $ 15 $ 50 $ 52
Crum & Forster
Insurance 20 40 - 3 10 70 40 80 70 193 158
The Resolution
Group 10 20 2 4 2 80 - 5 14 109 57
Westchester
Specialty Group 5 15 1 3 2 35 - 6 8 59 34
Total $ 40 $ 95 $ 3 $ 10 $ 24 $215 $ 40 $ 91 $107 $411 $301
[1] Included are case, IBNR and allocated loss adjustment expense reserves.
Total excludes $2 million of reserves for Mt. Airy Insurance Company, an
Insurance Company within the Coregis insurance operating group. Hazardous
waste exposures for Coregis are not significant primarily because 1986 was
the first year significant business volume was written by Insurance
Companies within the Coregis insurance operating group.
Because the above ranges have been estimated on a net basis, they do not allow
for uncollectible reinsurance. See discussion of the allowance for doubtful
reinsurance in Note 13 on Page 68 of the Company's 1994 Annual Report to
Shareholders. Additionally, the above ranges exclude consideration of
potential Ridge Re contract recoveries, which, as previously described,
provides aggregate excess of loss protection for adverse development on all
loss and loss expense reserves and uncollectible reinsurance reserves for 1992
and prior accident years. Cessions to Ridge Re, while beneficial to Talegen,
do not result in a benefit to the Insurance segment or consolidated Xerox
accounts. Based on the information available to them at December 31, 1994,
the insurance operating groups and Talegen do not expect that liabilities
associated with incurred asbestos bodily injury, asbestos-in-building,
hazardous waste and other latent or other long-tail liability claims will have
a material adverse affect on any of the above insurance operating group's
future liquidity or financial position. However, given the complexity and
lack of precision in estimating the exposure, no assurance can be made as to
the future potential impact of such claims.
Discontinued Operations
Other Financial Services, which were discontinued in 1993, had no after-tax
income in 1994, $63 million income in 1993, and a $39 million loss in 1992.
Included in the 1993 income was a $62 million after-tax gain from the
completion of two sales. The 1992 loss includes $90 million of adjustments,
primarily for the partial write-down of goodwill. The net investment in OFS
was $232 million at December 31, 1994. The Company believes that the
liquidation of the remaining OFS units will not result in a net loss. On
February 17, 1993, the Company completed the sale of VKM to an entity formed
by Clayton, Dubilier & Rice, Inc. for approximately $360 million. On October
25, 1993, the Company completed the sale of Furman Selz to a group of Furman
Selz employees. The purchase price was $99 million in cash and junior
subordinated debt. As part of the transaction, an affiliate of XFSI acquired
nine percent of the equity of the newly constituted Furman Selz. The $99
million price does not include the proceeds from the sale of Shields, a Furman
Selz subsidiary, and Regent, a subsidiary of Shields. The business and assets
of Shields and Regent were sold to Alliance Capital Management L.P. in a sale
that closed in the first quarter of 1994. The terms of the Furman Selz sales
agreement resulted in additional sales proceeds yielding approximately $60
million before settlement of related liabilities.
General American Life Insurance Company and XFSI signed a definitive agreement
in January 1995 for a wholly-owned subsidiary of General American (New
Owner)to acquire Xerox Life and related companies. Closing of the sale is
subject to the customary closing conditions and regulatory approvals, and is
targeted for the first half 1995. At closing, New Owner will rename the Xerox
Life Companies. OakRe Life Insurance Company, an XFSI subsidiary formed in
1994, will assume responsibility for existing Single Premium Deferred Annuity
(SPDA) policies issued by Xerox Life's Missouri and California companies (Life
Companies) via a reinsurance agreement (Agreement). The Agreement includes a
provision for the assumption (at their election) by the Life Companies, of all
of the SPDA policies at the end of their current rate reset periods. A
Novation Agreement with a New Owner affiliate provides for the assumption of
the liability under the Coinsurance Agreement for any SPDA policies not so
assumed by the Life Companies. Other policyholders (of Immediate, Whole Life,
and Variable annuities, as well as a minor amount of SPDAs issued by Xerox
Life New York) will continue to be the responsibility of the New Owner.
During 1990, the Company decided to withdraw from its real-estate development
and financing operations and third-party financing businesses. Since that
time, these operations have been in an orderly liquidation and assets were
reduced to $547 million at the end of 1994 from $3,749 million at the end of
1989, with assigned debt correspondingly reduced to $231 million from $2,781
million. Management believes that the combination of existing reserves
together with run-off profits should adequately provide for any credit losses
or losses on disposition.
Item 2. Properties
Within the Business Equipment industry segment, the Company owns a total of
ten principal manufacturing and engineering facilities and leases an
additional two such facilities. The domestic facilities are located in
California, New York and Oklahoma, while the international facilities are
located in Brazil, Canada, England, France, Holland and Mexico. The Company
also has four principal research facilities; two are owned facilities in New
York and Canada, and two are leased facilities in California and France.
In addition, within the Document Processing segment, there are numerous
facilities which encompass general offices, sales offices, service locations
and distribution centers. The principal owned facilities are located in New
York, England, Italy and Mexico. The principal leased facilities are located
in California, Virginia, Brazil, Canada, England, France, Germany and Italy.
As part of the Worldwide Document Processing restructuring program announced
in December 1993, the Company identified specific facilities to be closed or
consolidated over the next two years. Details of the facilities to be closed
are announced periodically as local implementation plans are finalized.
Within the Insurance industry segment, there are numerous facilities,
primarily within the United States, which encompass general, sales and
administrative offices. The principal facilities, almost all of which are
leased, are located in California, Illinois, New Jersey, New York and
Washington.
The Company's Corporate Headquarters facility, located in Connecticut, is
leased; a training facility, located in Virginia, is owned by the Company. In
the opinion of Xerox management, its properties have been well maintained, are
in sound operating condition and contain all the necessary equipment and
facilities to perform the Company's functions.
Item 3. Legal Proceedings
The information set forth under Note 18 "Litigation" on pages 79 through 81 of
the Company's 1994 Annual Report to Shareholders is incorporated by reference
in this document in answer to this item.
On July 21, 1993, the Company was notified that it had been named as a
respondent by the United States Environmental Protection Agency ("EPA") in a
unilateral Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA") section 106 (a) Administrative Order regarding the Metcoa
Radiation Site in Pulaski, PA. The Order directs the Company and 21 other
companies to perform remedial work at the Site. The order alleges that these
parties are jointly and severally liable to perform the work. Under CERCLA,
a respondent that does not comply with the Order could be subject to a civil
penalty of $25,000 for each day of noncompliance and be liable for punitive
damages at least equal to treble the EPA's cost of cleaning up the Site. The
Company denies that it is liable to perform the work described in the Order.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The information set forth under the following captions on the indicated pages
of the Company's 1994 Annual Report to Shareholders is hereby incorporated by
reference in this document in answer to this Item:
Caption Page No.
Stock Listed and Traded 92
Dividends and Stock Prices 89
Nine Years in Review - Common Shareholders
of Record at Year-End 88 and 89
Item 6. Selected Financial Data
The following information, as of and for the five years ended December 31,
1994, as set forth and included under the caption "Nine Years in Review" on
pages 88 and 89 of the Company's 1994 Annual Report to Shareholders, is hereby
incorporated by reference in this document in answer to this Item:
Revenues - Document Processing
Revenues - Insurance
Total revenues
Income (loss) from continuing operations
Primary earnings (loss) per common share from continuing operations
Total assets
Long-term debt
Preferred stock
Dividends declared per common share
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth under the caption "Financial Review" on pages 29-37,
39, and 42-57 of the Company's 1994 Annual Report to Shareholders is hereby
incorporated by reference in this document in answer to this Item.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements of Xerox Corporation and subsidiaries
and the notes thereto and the report thereon of KPMG Peat Marwick LLP,
independent auditors, which appear on pages 28, 38, 40-41, 58-85, and 87 of
the Company's 1994 Annual Report to Shareholders, are hereby incorporated by
reference in this document in answer to this Item. In addition, also included
is the quarterly financial data included under the caption "Quarterly Results
of Operations (Unaudited)" on page 86 of the Company's 1994 Annual Report to
Shareholders.
The other financial statements and schedules required herein are filed as
"Financial Statement Schedules" pursuant to Item 14 of this Report on Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
The information set forth in "Proposal 1--Election of Directors" in the
Company's Notice of the 1995 Annual Meeting of Shareholders and Proxy
Statement, to be filed pursuant to Regulation 14A not later than 120 days
after the close of the fiscal year covered by this report on Form 10-K, is
hereby incorporated by reference in this document in answer to this Part III.
Executive Officers of Xerox
The following is a list of the executive officers of Xerox, their current
ages, their present positions and the year appointed to their present
positions. There are no family relationships between any of the executive
officers named.
Each officer is elected to hold office until the meeting of the Board of
Directors held on the day of the next annual meeting of shareholders, subject
to the provisions of the By-Laws.
Year
Appointed
to Present Officer
Name Age Present Position Position Since
Paul A. Allaire* 56 Chairman of the Board, Chief 1991 1983
Executive Officer and Chairman
of the Executive Committee
A. Barry Rand 50 Executive Vice President, 1992 1986
Operations
Barry D. Romeril 51 Executive Vice President and 1993 1993
Chief Financial Officer
Stuart B. Ross 57 Executive Vice President; 1990 1979
Chairman and Chief Executive
Officer, Xerox Financial
Services, Inc.
Peter van Cuylenburg 47 Executive Vice President, 1993 1993
Operations
William F. Buehler 55 Senior Vice President and 1993 1991
Chief Staff Officer
Allan E. Dugan 54 Senior Vice President, 1992 1990
Corporate Strategic Services
Mark B. Myers 56 Senior Vice President, Corporate 1992 1989
Research and Technology
Richard S. Paul 53 Senior Vice President and 1992 1989
General Counsel
* Member of Xerox Board of Directors.
Executive Officers of Xerox, Continued
Year
Appointed
to Present Officer
Name Age Present Position Position Since
Richard S. Barton 46 Vice President; President, 1993 1993
U.S. Customer Operations
Eunice M. Filter 54 Vice President, Treasurer 1990 1984
and Secretary
Philip D. Fishbach 53 Vice President and Controller 1995 1990
John A. Lopiano 56 Vice President; President, 1995 1993
Xerox Production Systems
Patrick J. Martin 54 Vice President; President, 1993 1992
Office Document Products
Each officer named above, with the exceptions of William F. Buehler, Barry D.
Romeril and Peter van Cuylenburg, has been an officer or an executive of Xerox
or its subsidiaries for at least the past five years.
Prior to joining Xerox in 1991, Mr. Buehler was Vice President, Network
Systems Sales at the American Telephone & Telegraph Company (AT&T). Mr.
Buehler had been affiliated with AT&T since 1964.
Prior to joining Xerox in 1993, Mr. Romeril had been Group Finance Director at
British Telecommunications Plc since 1988. From 1987 to 1988 he was Finance
Director at BTR, Incorporated.
Prior to joining Xerox in 1993, Mr. van Cuylenburg had been President and
Chief Operating Officer of NeXT Computer Inc. since 1992. From 1989 to 1992
he was with Cable & Wireless Plc as a group director and as Chief Executive of
Mercury Communications Ltd., a subsidiary.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) and (2) The financial statements, independent auditors' reports
and financial statement schedules being filed are listed or otherwise
included in the attachment.
(3) The exhibits filed herewith or incorporated herein by reference are
set forth on the Index of Exhibits included herein.
(b) No Current Reports on Form 8-K were filed during the last quarter of the
period covered by this Report.
(c) The management contracts or compensatory plans or arrangements listed
in the Index of Exhibits that are applicable to the executive officers
named in the Summary Compensation Table which appears in Registrant's
1995 Proxy Statement are preceded by an asterisk (*).
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
XEROX CORPORATION
By: /s/ Barry D. Romeril
Executive Vice President and
Chief Financial Officer
March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
March 30, 1995
Signature Title
Principal Executive Officer:
Paul A. Allaire /s/ Paul A. Allaire
Chairman, Chief Executive Officer
and Director
Principal Financial Officer:
Barry D. Romeril /s/ Barry D. Romeril
Executive Vice President and
Chief Financial Officer
Principal Accounting Officer:
Philip D. Fishbach /s/ Philip D. Fishbach
Vice President and Controller
Directors:
/s/ Robert A. Beck Director
/s/ Joan Ganz Cooney Director
/s/ B. R. Inman Director
/s/ Vernon E. Jordan, Jr. Director
/s/ Yotaro Kobayashi Director
/s/ Ralph S. Larsen Director
/s/ John D. Macomber Director
/s/ N. J. Nicholas, Jr. Director
/s/ John E. Pepper Director
/s/ Martha R. Seger Director
/s/ Thomas C. Theobald Director
Report of Independent Auditors
To the Board of Directors and Shareholders of Xerox Corporation
Under date of January 31, 1995, we reported on the consolidated balance sheets
of Xerox Corporation and consolidated subsidiaries as of December 31, 1994 and
1993 and the related consolidated statements of income and cash flows for each
of the years in the three-year period ended December 31, 1994, as contained in
the Xerox Corporation 1994 Annual Report to Shareholders on pages 28, 38, 40-
41, and 58-85. These consolidated financial statements and our report thereon
are incorporated by reference in the 1994 Annual Report on Form 10-K. In
connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related financial statement schedules
listed in the accompanying index. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
As discussed in Note 2, the Company changed its methods of accounting for
income taxes and postretirement benefits other than pensions in 1992.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
January 31, 1995, except as to Notes 18 and 22,
which are as of March 2, 1995
Index to Financial Statements and Schedules
Financial Statements:
Consolidated statements of income of Xerox Corporation and subsidiaries for
each of the years in the three-year period ended December 31, 1994
Consolidated balance sheets of Xerox Corporation and subsidiaries as of
December 31, 1994 and 1993
Consolidated statements of cash flows of Xerox Corporation and subsidiaries
for each of the years in the three-year period ended December 31, 1994
Notes to consolidated financial statements
The above consolidated financial statements and related notes which
appear on pages 28, 38, 40-41, and 58-85 of the Company's 1994 Annual
Report to Shareholders are hereby incorporated by reference in this
document.
Commercial and Industrial (Article 5) Schedules:
I - Condensed financial information of registrant
II - Valuation and qualifying accounts
Insurance (Article 7) Schedules:
None
All other schedules are omitted as they are not applicable, or the information
required is included in the financial statements or notes thereto.
SCHEDULE I
Xerox Corporation - Parent Company
Condensed Statements of Income
Year ended December 31
(in millions, except per-share data) 1994 1993 1992
Revenues
Sales $ 3,582 $ 3,336 $ 3,270
Service and rentals 3,399 3,162 3,033
Sales to unconsolidated companies 1,090 902 1,093
Other income 51 63 58
Total Revenues 8,122 7,463 7,454
Costs and Expenses
Cost of sales 2,066 1,824 1,769
Cost of service and rentals 1,633 1,614 1,556
Cost of sales to unconsolidated companies 987 825 878
Research and development expenses 832 814 838
Selling, administrative and general expenses 2,342 2,311 2,298
Interest expense 213 210 199
Special charges, net - 887 -
Other, net (303) (302) (326)
Total Costs and Expenses 7,770 8,183 7,212
Income (Loss) before Income Taxes and Equity Income 352 (720) 242
Income Taxes (Benefits) 173 (262) 160
Equity in Net Income (Loss) of Unconsolidated
Companies' Continuing Operations 615 269 (299)
Income (Loss) from Continuing Operations 794 (189) (217)
Equity in Net Income (Loss) of Unconsolidated
Companies' Discontinued Operations - 63 (39)
Cumulative Effect of Changes in Accounting Principles - - (764)
Net Income (Loss) $ 794 $ (126)$(1,020)
Primary Earnings (Loss) per Share
Continuing Operations $ 6.73 $ (2.46)$ (2.91)
Discontinued Operations - .62 (.41)
Cumulative Effect of Changes
in Accounting Principles - - (7.97)
Primary Earnings (Loss) per Share $ 6.73 $ (1.84)$(11.29)
Fully Diluted Earnings (Loss) per Share
Continuing Operations $ 6.44 $ (2.46)$ (2.91)
Discontinued Operations - .62 (.41)
Cumulative Effect of Changes
in Accounting Principles - - (7.97)
Fully Diluted Earnings (Loss) per Share $ 6.44 $ (1.84)$(11.29)
See notes to condensed financial statements.
SCHEDULE I
Xerox Corporation - Parent Company
Condensed Balance Sheets
December 31 (in millions) 1994 1993
Assets
Cash $ 29 $ 23
Accounts Receivable, net 673 670
Finance Receivables, net 1,170 1,079
Inventories 1,068 995
Land, Buildings and Equipment, net 1,232 1,301
Investments in and Advances to Unconsolidated
Companies' Continuing Operations 5,783 5,218
Deferred Income Taxes 694 828
Investments in Discontinued Operations,net 779 1,063
Other Assets 368 411
Total Assets $11,796 $11,588
Liabilities and Equity
Accounts Payable $ 251 $ 252
Accrued Compensation and Benefit Costs 585 451
Unearned Income 99 132
Other Liabilities 1,787 2,033
Short-Term Debt and Current Portion of Long-Term Debt 480 327
Long-Term Debt 3,201 3,023
Liability for Postretirement Medical Benefits 980 973
Deferred ESOP Benefits (596) (641)
Preferred Stock 832 1,066
Common Shareholders' Equity* 4,177 3,972
Total Liabilities and Equity $11,796 $11,588
See notes to condensed financial statements.
* Shares of common stock issued and outstanding at December 31, 1994 and
1993 were (in thousands) 105,993 and 104,122, respectively.
SCHEDULE I
Xerox Corporation - Parent Company
Condensed Statements of Cash Flows
Year ended December 31 (in millions) 1994 1993 1992
Net Cash Flows from Operating Activities
Income (Loss) from Continuing Operations $ 794 $(189) $(217)
Adjustments required to reconcile income (loss) from
continuing operations to cash flows from
operating activities:
Depreciation and amortization 356 317 293
Document Processing provision for special charges - 887 -
Provisions for doubtful accounts 57 56 85
Provision for postretirement medical benefits 53 65 58
Charges against 1993 restructuring reserve (226) - -
Equity in (income) loss of unconsolidated companies'
continuing operations, net of dividends (540) (231) 394
Net increase in inventories (274) (175) (255)
Net increase in other operating
assets and liabilities (31) (100) (355)
Other, net 170 (324) 414
Total 359 306 417
Cash Flows from Investing Activities
Additions to land, buildings and equipment (203) (271) (282)
Proceeds from sales of land, buildings and equipment 115 12 10
Investments in and advances to unconsolidated
companies (110) (79) (135)
Return of capital from unconsolidated companies 13 20 -
Other, net 7 4 7
Total (178) (314) (400)
Cash Flows from Financing Activities
Decrease in short-term debt, net - - (98)
Proceeds from long-term debt 679 150 484
Principal payments on long-term debt (304) (324) (168)
Subtotal 375 (174) 218
Dividends on common and preferred stock (395) (389) (373)
Proceeds from sale of common stock 90 665 113
Redemption of preferred stock (245) (6) (6)
Other, net - (1) (1)
Total (175) 95 (49)
Change in Cash (Bank Overdraft) During the Year 6 87 (32)
Cash (Bank Overdraft) at Beginning of Year 23 (64) (32)
Cash (Bank Overdraft) at End of Year $ 29 $ 23 $ (64)
See notes to condensed financial statements.
SCHEDULE I
Xerox Corporation - Parent Company
Notes To Condensed Financial Statements
Note 1. Financial Statement Presentation
Certain prior year balances have been reclassified to conform to the 1994
presentation.
Note 2. Long-Term Debt
A summary of long-term debt at December 31, 1994 and 1993 follows:
Weighted average
interest rates at
(in millions) December 31, 1994 1994 1993
Guaranteed ESOP notes
due 1999-2004 7.69% $ 596 $ 641
Notes due 1994 - - 200
Notes due 1995 8.75 150 150
Notes due 1996 8.38 100 100
Notes due 1997 9.63 200 200
Notes due 1999 6.93 738 250
Notes due 2000 9.75 200 200
Notes due 2001 7.39 62 -
Notes due 2002 8.13 200 200
Notes due 2004 7.17 225 200
Notes due 2006 8.09 45 -
Debentures due 1995 9.25 200 200
Debentures due 2000 9.63 100 100
Commercial paper 6.03 761 701
Other debt due 1994-2014 8.51 97 201
Capital lease obligations 5.48 7 7
Subtotal 3,681 3,350
Less current maturities 480 327
Total long-term debt $3,201 $3,023
Debt Maturities - Scheduled payments due on long-term debt for the next five
years are (in millions): 1995-$480; 1996-$161; 1997-$266; 1998-$71; 1999-$813
and thereafter $1,890.
Payment subsequent to 1999 include domestic commercial paper which has been
classified as long-term debt because the Company has the intention and the
ability under the revolving credit agreements to affect refinancing on a long-
term basis.
Note 3. Dividends from Unconsolidated Companies
Dividends received from unconsolidated companies were (in millions): 1994-
$75; 1993-$38; and 1992-$95.
SCHEDULE II
Valuation and Qualifying Accounts
Year ended December 31, 1994, 1993 and 1992
Additions
Balance at charged to Deductions, Balance
beginning costs and net of at end
(in millions) of period expenses recoveries of period
1994
Allowance for Losses on:
Accounts Receivable $ 62 $ 70 $ 53 $ 79
Finance Receivables 300 182 163 319
Reinsurance Receivables 5 12 10 7
Premiums Receivable 16 - 1 15
Deferred Tax Valuation
Allowance* 134 152 - 286
$517 $416 $227 $706
1993
Allowance for Losses on:
Accounts Receivable $ 68 $ 51 $ 57 $ 62
Finance Receivables 275 199 174 300
Reinsurance Receivables 30 5 30 5
Premiums Receivable 9 2 (5) 16
Deferred Tax Valuation
Allowance 100 34 - 134
$482 $291 $256 $517
1992
Allowance for Losses on:
Accounts Receivable $ 68 $ 67 $ 67 $ 68
Finance Receivables 212 200 137 275
Reinsurance Receivables 103 205 278 30
Premiums Receivable 7 5 3 9
Deferred Tax Valuation
Allowance 100 - - 100
$490 $477 $485 $482
* The 1994 increase in deferred tax valuation allowance was charged to net
unrealized gain (loss) on investment securities in the Company's
consolidated balance sheet.
Index of Exhibits
Document and Location
(3) (a) (1) Restated Certificate of Incorporation of Registrant filed by the
Department of State of New York on June 10, 1988.
Incorporated by reference to Exhibit 3(a) to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1988.
(2) Certificate of Amendment dated July 7, 1989 to the Restated
Certificate of Incorporation.
Incorporated by reference to Exhibit 3(a) to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1989.
(3) Certificate of Amendment dated October 10, 1994 to the Restated
Certificate of Incorporation.
(b) By-Laws of Registrant, as amended through May 29, 1991.
Incorporated by reference to Exhibit 3(b)(2) to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1991.
(4) (a) Indenture dated as of July 1, 1986 between Registrant and Bankers
Trust Company relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and as
authorized by or pursuant to a resolution of Registrant's Board
of Directors.
Incorporated by reference to Exhibit 4(a) to Registration No.
33-7415.
(b) Indenture dated as of February 1, 1989 between Registrant and
Chemical Bank relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and as
authorized by or pursuant to a resolution of Registrant's Board
of Directors.
Incorporated by reference to Exhibit 4(a) to Registration No.
33-27188.
(c) Indenture dated as of January 15, 1990 between Registrant and
BankAmerica National Trust Company (as successor in interest to
Security Pacific National Trust Company (New York)) relating
to unlimited amounts of debt securities which may be issued
from time to time by Registrant when and as authorized by or
pursuant to a resolution of Registrant's Board of Directors.
Incorporated by reference to Exhibit 4(a) to Registration No.
33-33150.
(d) Indenture dated as of December 1, 1991 between Registrant and
Citibank, N.A. relating to unlimited amounts of debt securities
which may be issued from time to time by Registrant when and
as authorized by or pursuant to a resolution of Registrant's
Board of Directors.
Incorporated by reference to Exhibit 4(a) to Registration No.
33-44597.
(e) Indenture dated as of February 1, 1987 between Xerox Credit
Corporation (XCC) and Continental Illinois National Bank and Trust
Company of Chicago relating to unlimited amounts of debt
securities which may be issued from time to time by XCC when and
as authorized by the XCC's Board of Directors or the Executive
Committee of the Board of Directors.
Incorporated by reference to Exhibit (4)(a) to XCC's Registration
Statement No. 33-12160.
(f) Indenture dated as of March 1, 1988, as supplemented by the First
Supplemental Indenture dated as of July 1, 1988, between XCC and
The First National Bank of Chicago relating to unlimited amounts
of debt securities which may be issued from time to time by XCC
when and as authorized by XCC's Board of Directors or the
Executive Committee of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration
Statement No. 33-20640 and to Exhibit 4(a)(2) to XCC's Current
Report on Form 8-K dated July 13, 1988.
(g) Indenture dated as of March 1, 1989, as supplemented by the First
Supplemental Indenture dated as of October 1, 1989, between XCC
and Citibank, N.A. relating to unlimited amounts of debt
securities which may be issued from time to time by XCC when and
as authorized by XCC's Board of Directors or Executive Committee
of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration
Statement No. 33-27525 and to Exhibit 4(a)(2) to XCC's
Registration Statement No. 33-31367.
(h) Indenture dated as of August 1, 1991, as supplemented by the
First Supplemental Indenture dated as of December 31, 1991,
between XCC and Bank of Montreal Trust Company relating to
unlimited amounts of debt securities which may be issued from
time to time by XCC when and as authorized by XCC's Board of
Directors or Executive Committee of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration
Statement No. 33-39838.
(i) Indenture dated as of October 1, 1991, as supplemented by the
First Supplemental Indenture dated as of May 1, 1992, between XCC
and Citibank, N.A. relating to unlimited amounts of debt
securities which may be issued from time to time by XCC when and
as authorized by XCC's Board of Directors or Executive Committee
of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration
Statement No. 33-43470.
(j) Indenture dated as of May 1, 1994, between XCC and The First
National Bank of Boston relating to unlimited amounts of debt
securities which may be issued from time to time by XCC when and
as authorized by XCC's Board of Directors or Executive Committee
of the Board of Directors.
Incorporated by reference to Exhibit 4(a) to XCC's Registration
Statement No. 33-53533 and to Exhibits 4(a)(1) and 4(a)(2) to
XCC's Registration Statement No. 33-43470.
(k) Instruments with respect to long-term debt where the total amount
of securities authorized thereunder does not exceed 10% of the
total assets of the Registrant and its subsidiaries on a
consolidated basis have not been filed. The Registrant agrees to
furnish to the Commission a copy of each such instrument upon
request.
(10) The management contracts or compensatory plans or arrangements
listed below that are applicable to the executive officers named
in the Summary Compensation Table which appears in Registrant's
1995 Proxy Statement are preceded by an asterisk (*).
*(a) Registrant's 1976 Executive Long-Term Incentive Plan, as amended
through February 4, 1991.
Incorporated by reference to Exhibit (10)(a) to the Registrant's
Annual Report on Form 10-K for the Year Ended December 31, 1991.
*(b) Registrant's 1991 Long-Term Incentive Plan, as amended through
July 15, 1991.
Incorporated by reference to Exhibit 10(b) to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1991.
(c) Registrant's Retirement Income Plan for Directors, as amended
through October 2, 1989.
Incorporated by reference to Exhibit 10(n) to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended September
30, 1989.
*(d) Description of Registrant's Annual Performance Incentive Plan.
Incorporated by reference to Exhibit 10(d) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
*(e) Registrant's 1993 Restatement of Unfunded Retirement Income
Guarantee Plan.
Incorporated by reference to Exhibit 10(e) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
(f) Consent Order To Cease and Desist. In the Matter of Xerox
Corporation, Before the Federal Trade Commission, Docket No.
8909 dated 3/29/75.
Incorporated by reference to Exhibit I to Registrant's Report on
Form 8-K for July 1975.
*(g) 1993 Restatement of Registrant's Unfunded Supplemental Retirement
Plan.
Incorporated by reference to Exhibit 10(g) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
(h) Registrant's 1981 Deferred Compensation Plan, 1985
Restatement, as amended through April 2, 1990.
Incorporated by reference to Exhibit 10(h) to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended March 31,
1990.
(i) Registrant's Restricted Stock Plan for Directors, as amended
through February 7, 1994.
Incorporated by reference to Exhibit 10(i) to Registrant's Annual
Report on Form 10-K for the Year Ended December 31, 1993.
*(j) Form of severance agreement entered into and to be entered into
with various executive officers.
Incorporated by reference to Exhibit 10(j) to Registrant's
Quarterly Report on Form 10-Q for the Quarter ended June 30,
1989.
*(k) Registrant's Contributory Life Insurance Plan.
Incorporated by reference to Exhibit 10(s) to Registrant's
Quarterly Report on Form 10-Q for the Quarter Ended June 30,
1989.
(l) 1993 Amendment and Restatement of Registrant's 1989 Deferred
Compensation Plan for Directors.
Incorporated by reference to Exhibit 10(l) to Registrant's Annual
Report on Form 10-K for the year ended December 31.
*(m) 1993 Amendment and Restatement of Registrant's 1989 Deferred
Compensation Plan for Executives.
Incorporated by reference to Exhibit 10(m) to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.
(11) Statement re computation of per share earnings.
(12) Computation of Ratio of Earnings to Fixed charges.
(13) Pages 28 through 92 of Registrant's 1994 Annual Report
to Shareholders.
(21) Subsidiaries of the Registrant.
(23) Consent of KPMG Peat Marwick LLP.
(28) P Schedule P of Annual Statements to State Regulatory Authorities.
Incorporated by reference to Exhibit (28) on the Form SE of
Registrant dated March 27, 1995.