FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to___________
Commission File Number 1-4471
XEROX CORPORATION
(Exact Name of Registrant as
specified in its charter)
New York 16-0468020 _
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
P.O. Box 1600
Stamford, Connecticut 06904-1600
(Address of principal executive offices)
(Zip Code)
(203) 968-3000 _
(Registrant's telephone number, including area code)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31,1997
Common Stock 325,888,334 shares
This document consists of 33 pages.
Forward-Looking Statements
From time to time the Registrant and its representatives may
provide information, whether orally or in writing, including
certain statements in this Form 10-Q under "Management's
Discussion and Analysis of Results of Operations and Financial
Condition", which are deemed to be "forward-looking" within the
meaning of the Private Securities Litigation Reform Act of 1995
("Litigation Reform Act"). These forward-looking statements and
other information relating to the Company are based on the
beliefs of management as well as assumptions made by and
information currently available to management.
The words "anticipate", "believe", "estimate", "expect",
"intends", and similar expressions, as they relate to the Company
or the Company's management, are intended to identify forward-
looking statements. Such statements reflect the current views of
the Registrant with respect to future events and are subject to
certain risks, uncertainties and assumptions. Should one or more
of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated
or expected. The Registrant does not intend to update these
forward-looking statements.
In accordance with the provisions of the Litigation Reform Act we
are making investors aware that such "forward-looking"
statements, because they relate to future events, are by their
very nature subject to many important factors which could cause
actual results to differ materially from those contained in the
"forward-looking" statements. Such factors include but are not
limited to the following:
Competition - the Registrant operates in an environment of
significant competition, driven by rapid technological advances
and the demands of customers to become more efficient. There are
a number of companies worldwide with significant financial
resources which compete with the Registrant to provide document
processing products and services in each of the markets served by
the Registrant, some of whom operate on a global basis. The
Registrant's success in its future performance is largely
dependent upon its ability to compete successfully in its
currently-served markets and to expand into additional market
segments.
Transition to Digital - presently black and white light lens
copiers represent over half the Registrant's revenues. This
segment of the general office is mature with anticipated
declining industry revenues as the market transitions to digital
technology. Some of the Registrant's new digital products replace
or compete with the Registrant's current light lens equipment.
Changes in the mix of products from light lens to digital, and
the pace of that change as well as competitive developments could
cause actual results to vary from those expected.
Pricing - the Registrant's ability to succeed is dependent upon
its ability to obtain adequate pricing for its products and
services which provide a reasonable return to shareholders.
Depending on competitive market factors, future prices the
Registrant can obtain for its products and services may vary from
historical levels.
Financing Business - a significant portion of the Registrant's
profits arise from the financing of its customers' purchase of
the Registrant's equipment. Presently the Registrant finances
approximately 80% of such equipment purchases in the U.S. and 75%
in Western Europe. The Registrant's ability to provide such
financing at competitive rates and realize profitable spreads is
highly dependent upon its own costs of borrowing which, in turn,
depend upon its credit ratings. Significant changes in such
ratings could reduce the profitability of such financing business
and/or make the Registrant's financing less attractive to
customers thus reducing the volume of financing business done.
The Registrant's present credit ratings permit ready access to
the credit markets and there is no assurance that these credit
ratings can be maintained and/or ready access to the credit
markets can be assured.
Productivity - the Registrant's ability to sustain and improve
its profit margins is largely dependent on its ability to
maintain an efficient, cost-effective operation. Productivity
improvements through process reengineering, design efficiency and
supplier cost improvements are required to offset labor and
materials cost inflation and competitive price pressures.
International Operations - the Registrant derives approximately
half its revenue from operations outside of the United States.
In addition, the Registrant manufactures many of its products
and/or their components outside the United States. The
Registrant's future revenue, cost and profit results could be
adversely affected by a number of factors, including changes in
foreign currency exchange rates, changes in economic conditions
from country to country, changes in a country's political
conditions, trade protection measures, licensing requirements and
local tax issues.
New Products/Research and Development -the process of developing
new high technology products and solutions is inherently complex
and uncertain. It requires accurate anticipation of customers'
changing needs and emerging technological trends. The Registrant
must then make long-term investments and commit significant
resources before knowing whether these investments will
eventually result in products that achieve customer acceptance
and revenues required to provide anticipated returns from these
investments.
Disengagement From Insurance Business - during the process of
disengaging from the insurance segment, the Registrant will
continue to be subject to all the business risks and rewards of
such businesses. Although Registrant believes that the proceeds
received from the disposition of the remaining insurance
businesses will be consistent with the net carrying value of
these businesses, until such remaining insurance companies are
actually sold, no assurances can be given as to the ultimate
impact the remaining insurance companies will have on the
Registrant's total results from operations or whether the
proceeds of sales will equal such carrying value. The insurance
business is subject to cyclical competitive conditions, judicial
decisions affecting insurers' liabilities, and by volatile and
unpredictable developments, including changes in the propensity
of courts to grant large awards, fluctuations in interest rates
and other changes in the investment environment (which affect
market prices of insurance companies' investments, the income
from those investments and inflationary pressures that may tend
to affect the size of losses). In addition, the operating
results of the remaining insurance companies have been
historically influenced by exposure to uncollectible reinsurance,
which had been greater than for most other insurers.
Xerox Corporation
Form 10-Q
September 30, 1997
Table of Contents
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Income 7
Consolidated Balance Sheets 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Document Processing 16
Discontinued Operations 23
Capital Resources and Liquidity 26
Hedging Instruments 27
Part II - Other Information
Item 1. Legal Proceedings 29
Item 2. Changes in Securities 29
Item 6. Exhibits and Reports on Form 8-K 29
Signatures 31
Exhibit Index
Computation of Net Income per Common Share 32
Computation of Ratio of Earnings to Fixed Charges 33
By-Laws of Xerox Corporation as amended through June 11, 1997
(filed in electronic form only)
1997 Restatement of Xerox Corporation's Unfunded Retirement
Income Guarantee Plan (filed in electronic form only)
1997 Restatement of Xerox Corporation's Unfunded Supplemental
Retirement Plan (filed in electronic form only)
Table of Contents (Continued)
Xerox Corporation's Deferred Compensation Plan For Directors,
1997 Amendment and Restatement (filed in electronic form only)
Xerox Corporation's Deferred Compensation Plan For Executives,
1997 Amendment and Restatement (filed in electronic form only)
Financial Data Schedule (filed in electronic form only)
For additional information about The Document Company Xerox,
please visit our World-wide Web site at www.xerox.com and select
"Investor Information."
PART I - FINANCIAL INFORMATION
Item I Xerox Corporation
Consolidated Statements of Income
Three months ended Nine months ended
September 30, September 30,
(In millions, except per-share data) 1997 1996 1997 1996
Revenues
Sales $ 2,346 $ 2,165 $ 6,611 $ 6,267
Service and rentals 1,787 1,740 5,394 5,280
Finance income 243 253 749 756
Total Revenues 4,376 4,158 12,754 12,303
Costs and Expenses
Cost of sales 1,281 1,214 3,635 3,496
Cost of service and rentals 929 890 2,740 2,671
Equipment financing interest 128 131 386 386
Research and development expenses 273 261 816 779
Selling, administrative and general
expenses 1,284 1,256 3,752 3,691
Gain on affiliates' sales of stock, net - (11) - (11)
Other, net 31 34 50 65
Total Costs and Expenses 3,926 3,775 11,379 11,077
Income before Income Taxes, Equity Income
and Minorities' Interests 450 383 1,375 1,226
Income taxes 153 138 478 441
Equity in net income of unconsolidated
affiliates 37 30 105 92
Minorities' interests in earnings of
subsidiaries 14 25 75 97
Income from Continuing Operations 320 250 927 780
Discontinued Operations - - - -
Net Income $ 320 $ 250 $ 927 $ 780
Primary Earnings per Share
Continuing Operations $ 0.92 $ 0.71 $ 2.70 $ 2.24
Discontinued Operations - - - -
Primary Earnings per Share $ 0.92 $ 0.71 $ 2.70 $ 2.24
Fully Diluted Earnings per Share
Continuing Operations $ 0.88 $ 0.68 $ 2.57 $ 2.14
Discontinued Operations - - - -
Fully Diluted Earnings per Share $ 0.88 $ 0.68 $ 2.57 $ 2.14
See accompanying notes.
Xerox Corporation
Consolidated Balance Sheets
September 30, December 31,
(In millions, except share data in thousands) 1997 1996
Assets
Cash $ 62 $ 104
Accounts receivable, net 2,129 2,022
Finance receivables, net 4,282 4,386
Inventories 3,092 2,676
Deferred taxes and other current assets 952 964
Total Current Assets 10,517 10,152
Finance receivables due after one year, net 7,096 6,986
Land, buildings and equipment, net 2,287 2,256
Investments in affiliates, at equity 1,434 1,282
Goodwill 1,345 623
Other assets 1,266 1,121
Investment in discontinued operations 3,303 4,398
Total Assets $ 27,248 $ 26,818
Liabilities and Equity
Short-term debt and current portion of
long-term debt $ 3,807 $ 3,536
Accounts payable 476 577
Accrued compensation and benefit costs 717 761
Unearned income 201 208
Other current liabilities 2,103 2,122
Total Current Liabilities 7,304 7,204
Long-term debt 9,015 8,424
Postretirement medical benefits 1,079 1,050
Deferred taxes and other liabilities 2,266 2,429
Discontinued operations liabilities -
policyholders' deposits and other 1,850 2,274
Deferred ESOP benefits (494) (494)
Minorities' interests in equity of subsidiaries 125 843
Company obligated, mandatorily redeemable
preferred securities of subsidiary trust
holding solely subordinated debentures
of the Company 637 -
Preferred stock 709 721
Common shareholders' equity 4,757 4,367
Total Liabilities and Equity $ 27,248 $ 26,818
Shares of common stock issued 325,902 325,902
Shares of common stock outstanding 325,584 323,681
See accompanying notes.
Xerox Corporation
Consolidated Statements of Cash Flows
Nine months ended September 30 (in millions) 1997 1996
Cash Flows from Operating Activities
Income from Continuing Operations $ 927 $ 780
Adjustments required to reconcile income to cash
flows from operating activities:
Depreciation and amortization 517 528
Provisions for doubtful accounts 176 164
Provision for postretirement medical
benefits, net of payments 30 30
Minorities' interests in earnings of subsidiaries 75 97
Undistributed equity in income of affiliated companies(101) (91)
Increase in inventories (723) (747)
Increase in finance receivables (513) (379)
Increase in accounts receivable (166) (242)
Decrease in accounts payable and accrued
compensation and benefit costs (126) (223)
Net change in current and deferred income taxes 108 194
Other, net (183) (434)
Total 21 (323)
Cash Flows from Investing Activities
Cost of additions to land, buildings and equipment (311) (340)
Proceeds from sales of land, buildings and equipment 25 30
Purchase of additional interest in Xerox Limited (812) -
Net change in payables to Discontinued Operations (168) (26)
Total (1,266) (336)
Cash Flows from Financing Activities
Net change in debt 249 1,314
Dividends on common and preferred stock (356) (330)
Proceeds from sale of common stock 130 85
Repurchase of common and preferred stock (116) (257)
Dividends to minority shareholders (5) (1)
Net proceeds from issuance of mandatorily
redeemable preferred stock 637 -
Total 539 811
Effect of Exchange Rate Changes on Cash (7) (2)
Cash Provided (Used) by Continuing Operations (713) 150
Cash Provided (Used) by Discontinued Operations 671 (150)
Decrease in Cash (42) -
Cash at Beginning of Period 104 136
Cash at End of Period $ 62 $ 136
See accompanying notes.
Xerox Corporation
Notes to Consoloidated Financial Statements
1. The consolidated financial statements presented herein have
been prepared by Xerox Corporation ("the Company") in accordance
with the accounting policies described in its 1996 Annual Report
to Shareholders and should be read in conjunction with the notes
thereto.
Effective 1997, Fuji Xerox changed its reporting period from a
fiscal year ending October 20 to a fiscal year ending December
20. The results of operations during the period between the end
of the 1996 fiscal year and the beginning of the new fiscal year
(the stub period) amounted to a gain of $8 million. The gain was
credited to retained earnings.
Effective July 1, 1997, we changed the functional currency for
our Brazilian operation from the U.S. dollar to the Brazilian
Real as we believe that the Brazilian economy is no longer
considered hyperinflationary. The effect of this change is
immaterial to both the Company's results of operations and
financial position in the third quarter.
In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) which are necessary for a fair
statement of operating results for the interim periods presented
have been made. Interim financial data presented herein are
unaudited.
References herein to "we" or "our" refer to Xerox and
consolidated subsidiaries unless the context specifically
requires otherwise.
2. Inventories consist of (in millions):
September 30, December 31,
1997 1996
Finished products $ 1,787 $ 1,570
Work in process 125 80
Raw materials and supplies 446 322
Equipment on operating leases, net 734 704
Total $ 3,092 $ 2,676
3. In June, 1997, we acquired the remaining 20 percent of Xerox
Limited (formerly Rank Xerox Limited) from The Rank Group Plc
(Rank) in a transaction valued at 940 million pounds sterling, or
approximately $1.5 billion. As a result of this transaction, we
now own 100 percent of Xerox Limited. The transaction was funded
entirely by debt consisting of 500 million pounds sterling of
third party debt and 440 million pounds sterling of notes payable
issued to Rank, which will be paid in deferred installments, half
within one year and the other half at the end of two years. An
additional payment of up to 60 million pounds sterling would be
made in 2000 based upon achievement of certain significant Xerox
Limited earnings growth targets by 1999. The purchase price was
allocated such that goodwill increased by $737 million, minority
interest in equity of subsidiaries was reduced by approximately
$720 million, with the balance of $70 million applied to other
assets and liabilities, primarily investment in affiliates, at
equity.
4. In January 1997, a trust sponsored and wholly owned by the
Company issued 650,000 shares of 8% Capital Securities (the
Preferred Securities) with an aggregate liquidation amount of
$650 million to the public for net proceeds, after discount and
fees, of $637 million. The trust also issued 20,103 shares of
common securities to the Company. The proceeds from these
offerings were invested by the trust in $650 million aggregate
principal amount of the Company's newly-issued 8% Junior
Subordinated Debentures due 2027 (the Debentures). The
Debentures represent all of the assets of the trust. The
proceeds from the issuance of the Debentures were used by the
Company for general corporate purposes. The Debentures and
related income statement effects are eliminated in the Company's
consolidated financial statements.
The Preferred Securities accrue and pay cash distributions semi-
annually at a rate of 8% per annum of the stated liquidation
amount of $1,000 per Preferred Security. The Company has
guaranteed, on a subordinated basis, distributions and other
payments due on the Preferred Securities (the Guarantee). The
Guarantee, when taken together with the Company's obligations
under the Debentures and in the indenture pursuant to which the
Debentures were issued and the Company's obligations under the
Amended and Restated Declaration of Trust governing the trust,
provides a full and unconditional guarantee of amounts due on the
Preferred Securities.
The Preferred Securities are mandatorily redeemable upon the
maturity of the Debentures on February 1, 2027, or earlier to the
extent of any redemption by the Company of any Debentures. The
redemption price on February 1, 2027 will be $1,000 per share
plus accrued and unpaid distributions to the date fixed for
redemption.
5. Common shareholders' equity consists of (in millions):
September 30, December 31,
1997 1996
Common stock $ 327 $ 327
Additional paid-in-capital 1,354 1,353
Retained earnings 3,656 3,090
Net unrealized gain (loss) on
investment securities 5 (1)
Translation adjustments (506) (241)
Treasury stock (79) (161)
Total $ 4,757 $ 4,367
6. Interest expense totaled $450 million and $446 million for
the nine months ended September 30, 1997 and 1996, respectively.
7. In 1996, the Board of Directors authorized the Company to
repurchase up to $1 billion of Xerox common stock. The stock
would be purchased from time to time on the open market depending
on market conditions. Through September 30, 1997, 8.5 million
shares had been repurchased for $422 million, some of which had
been reissued to satisfy the exercise of stock options. In the
second quarter of 1997, the repurchase program was suspended in
connection with the acquisition of the remaining interest in
Xerox Limited, as described above.
8. Summarized operating results of Insurance follow (in
millions):
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Insurance premiums earned $ 285 $ 433 $1,090 $1,287
Investment and other income 90 112 313 325
Total Revenues 375 545 1,403 1,612
Costs and Expenses
Insurance losses and loss expenses 252 349 1,173 1,054
Insurance acquisition costs and
other operating expenses 100 178 377 461
Interest expense 40 50 138 153
Administrative and general expenses 45 10 17 19
Total Costs and Expenses 437 587 1,705 1,687
Realized Capital Gains 2 - 9 2
Income (Loss) Before Income Taxes (60) (42) (293) (73)
Income Tax Benefits 14 16 79 31
Income (Loss) From Insurance * $ (46) $ (26) $ (214) $ (42)
* The above operating results exclude the gains and losses related to sales
of the Insurance subsidiaries. All results, including the sale-related
impacts, were charged to reserves established for this purpose and,
therefore, did not impact our earnings.
The net assets at September 30, 1997 and December 31, 1996 of the
Insurance businesses included in our consolidated balance sheets
as discontinued operations are as follows (in millions):
September 30, December 31,
1997 1996
Insurance Assets
Investments $ 5,850 $ 7,889
Reinsurance recoverable 1,974 2,458
Premiums and other receivables 646 1,082
Deferred taxes and other assets 806 1,201
Total Insurance Assets $ 9,276 $12,630
Insurance Liabilities
Unpaid losses and loss expenses $ 6,453 $ 8,572
Unearned income 565 812
Notes payable 200 215
Other liabilities 882 1,185
Total Insurance Liabilities $ 8,100 $10,784
Investment in Insurance, net $ 1,176 $ 1,846
9. Litigation
Continuing Operations
On March 10, 1994, a lawsuit was filed in the United States
District Court for the District of Kansas by two independent
service organizations (ISOs) in Kansas City and St. Louis and
their parent company. Plaintiffs claim damages predominately
resulting from the Company's alleged refusal to sell parts for
high volume copiers and printers to plaintiffs prior to 1994. The
Company's policies and practices with respect to the sale of
parts to ISOs were at issue in an antitrust class action in
Texas, which was settled by the Company during 1994. Claims for
individual lost profits of ISOs who were not named parties, such
as the plaintiffs in the Kansas action, were not included in that
class action. In their complaint plaintiffs allege monetary
damages in the form of lost profits in excess of $10 million (to
be trebled) and injunctive relief. In a report prepared,
pursuant to Rule 26(a)2)B)of the Federal Rules of Civil
Procedure, an accountant retained by plaintiffs as an expert has
indicated that he plans to testify at trial that, allegedly as a
result of Xerox' conduct, plaintiffs have lost profits of
approximately $75 million. The Company has asserted counterclaims
against the plaintiffs alleging patent and copyright
infringement, misappropriation of Xerox trade secrets and
conversion. On December 11, 1995, the District Court issued a
preliminary injunction against the parent company for copyright
infringement. On April 8, 1997, the District Court granted
partial summary judgment in favor of the Company on plaintiffs'
antitrust claims, ruling that the Company's unilateral refusal to
sell or license its patented parts cannot give rise to antitrust
liability. The Court's ruling did not preclude a finding of
antitrust liability based upon other allegations of exclusionary
conduct, including the refusal to sell unpatented parts. The
District Court also granted summary judgment in favor of the
Company on its patent infringement claim, leaving open with
respect to patent infringement only the issues of willfulness and
the amount of damages, and granted partial summary judgment in
favor of the Company with respect to some of its claims of
copyright infringement. On July 17, 1997 the District Court,
pursuant to 28 U.S.C. Section 1292(b), certified its April 8,
1997 Order for interlocutory appeal to the United States Court of
Appeals for the Federal Circuit and stayed trial of the matter
pending remand.
On January 3, 1996, an action was commenced by Barneyscan
Corporation against Registrant, Pixelcraft, Inc., a wholly
owned subsidiary of Registrant, and three individuals, seeking
damages "in excess of $10 million" for breach of contract and
fraud, punitive damages, attorneys' fees and an accounting.
Plaintiff claimed it was entitled to royalties on certain
machines and software sold by Pixelcraft between July 1, 1992
and June 30, 1996. In August 1997, in an amended letter to a
court-appointed mediator, plaintiff expanded its damage claim
by alleging that it was also entitled to royalties in excess of
$400 million for use of Barneyscan technology in conjunction with
Xerox color copiers and printers during that time period.
Pixelcraft admits that Barneyscan is entitled to royalties of
approximately $750,000 from Pixelcraft alone, minus certain
offsets, and no more. Registrant (I) denies any liability to
plaintiff, (ii) denies the use of Barneyscan technology as
alleged by plaintiff, and (iii) asserts that the royalty
calculation used by plaintiff is inconsistent with the facts in
numerous respects. Defendants intend to vigorously defend the
action. There is no trial date.
Discontinued Operations
Farm & Home Savings Association, now part of Mercantile Bank,
(Farm & Home) and certain Talegen Holdings, Inc. insurance
companies (Insurance Companies) entered into an agreement
(Indemnification Agreement) under which the Insurance Companies
are required to defend and indemnify Farm & Home from certain
actual and punitive damage claims being made against Farm & Home
relating to the Brio superfund site (Brio). A number of lawsuits
were filed against Farm & Home in the District Courts of Harris
County, Texas, by several hundred plaintiffs, former residents
of, or students attending school within, a residential
subdivision known as Southbend, seeking both actual and punitive
damages allegedly relating to injuries arising out of the
hazardous substances at Brio. The Insurance Companies have been
defending these cases under a reservation of rights because it is
unclear whether certain of the claims fall under the coverage of
either the policies or the Indemnification Agreement. On August
29, 1997 the trial court granted motions for summary judgment
filed on behalf of Farm & Home dismissing the claims of
approximately 640 plaintiffs, finding that Farm & Home owed no
duty to the plaintiffs as a matter of law. As a result of that
ruling, the parties consummated a previously agreed settlement,
under which all but approximately 50 of the pending bodily injury
claims have been settled, and no appeal will be taken from the
trial court's ruling. The final group of 50 plaintiffs have also
agreed to a settlement which is to be submitted for court
approval in November 1997. After all of the properties within
Southbend were acquired by the Insurance Companies, all of the
structures were demolished. Ownership of the land has been
transferred to an unrelated third party, which has agreed to
indemnify the Insurance Companies for any liability arising after
the conveyance.
Item II Xerox Corporation
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Document Processing
Summary
Income from continuing operations increased 28 percent to $320
million in the 1997 third quarter from $250 million in the 1996
third quarter. For the first nine months, income from continuing
operations increased 19 percent to $927 million.
Revenues of $4.4 billion in the quarter represented 9 percent
growth on a pre-currency basis. After the adverse effect of
currency, revenue growth was 5 percent. The pre-currency revenue
growth was driven by 21 percent growth in equipment sales
(excluding OEM sales) and 31 percent growth in document
outsourcing. For the first nine months, revenues of $12.8
billion represented 6 percent growth on a pre-currency basis or 4
percent after the adverse effect of currency.
Fully diluted earnings per share increased 29 percent to $0.88 in
the third quarter. For the first nine months of 1997, fully
diluted earnings per share increased 20 percent to $2.57.
Pre-Currency Growth
To understand the trends in the business, we believe that it is
helpful to adjust revenue and expense growth (except for ratios)
to exclude the impact of changes in the translation of foreign
currencies into U.S. dollars. We refer to this adjusted growth
as "pre-currency growth."
A substantial portion of our consolidated revenues is derived
from operations outside of the United States where the U.S.
dollar is not the functional currency, primarily in Europe. When
compared with the average of the major European currencies on a
revenue weighted basis, the U.S. dollar was approximately 11
percent stronger in the 1997 third quarter than in the 1996 third
quarter; only the pound sterling was stronger. As a result,
currency translation had an unfavorable impact of approximately 4
percentage points on total revenues in the 1997 third quarter.
Revenues denominated in currencies where the local currency is
the functional currency are not hedged for purposes of
translation into U.S. dollars.
Revenues
For the major product categories, the pre-currency revenue growth
rates are as follows:
1996 1997 _
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
Total Revenues 4% 6% 5% 8% 6% 5% 6% 9%
Digital Products 19 21 23 26 23 18 24 26
Light Lens Copiers - - (4) - (1) (2) (3) 1
Digital product revenues grew 26 percent in the 1997 third
quarter following 24 percent growth in the second quarter and 18
percent growth in the first quarter. These revenues represent 35
percent of total revenues in the 1997 third quarter compared with
30 percent in the 1996 third quarter. Color copying and printing
grew 48 percent with continued excellent growth in the DocuColor
40, the Company's 40 page-per-minute color document production
system. Orders and installations of the new black and white
Document Centre digital copiers introduced in April continue to
exceed our expectations, and these copiers were supply
constrained in the third quarter. Production publishing grew 19
percent in the 1997 third quarter compared with 9 percent growth
in the 1997 second quarter, primarily as a result of excellent
customer demand for the new 180 page-per-minute DocuTech
Production Publisher. Computer printing grew 4 percent in the
1997 third quarter following two quarters of unusually strong
growth.
Despite continuing pricing pressures, black-and-white light lens
copier revenues grew 1 percent in the 1997 third quarter compared
with a weak 1996 third quarter, and follows declines of 3 percent
in the second quarter and 2 percent in the first quarter. These
revenues were 51 percent of total revenues in the 1997 third
quarter compared with 55 percent in the 1996 third quarter.
Geographically, the pre-currency revenue growth rates are as
follows:
1996 1997 _
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
Total Revenues 4% 6% 5% 8% 6% 5% 6% 9%
United States 5 6 5 9 6 6 3 7
Xerox Limited (2) 2 2 2 1 3 6 11
Other Areas 11 10 6 14 10 3 11 11
Memo: Fuji Xerox 13 15 11 11 12 11 4 4
Revenues from the U.S. sales and service operations grew 11
percent in the third quarter driven by excellent digital
equipment sales and strong black and white light lens copier
sales. Lower OEM sales in the 1997 third quarter compared with a
year ago reduced total U.S. revenue growth to 7 percent.
Xerox Limited (formerly Rank Xerox Limited) and related companies
manufacture and market Xerox products principally in Europe.
Overall, the European economies remain soft. However, Holland and
Italy had strong revenue growth in the third quarter and growth
in France and Germany was good. The U.K. had modest growth.
Other Areas include operations principally in Latin America,
Canada and China. Brazil had strong revenue growth in the 1997
third quarter reflecting excellent growth in equipment sales and
document outsourcing. Revenue growth was also excellent in
Mexico, but smaller Latin American countries such as Chile and
Venezuela continue to be impacted by difficult economic
conditions. Revenues in Canada and China were essentially flat
in the third quarter.
Fuji Xerox Co., Ltd., an unconsolidated entity, jointly owned by
Xerox Limited and Fuji Photo Film Company Limited, develops,
manufactures and distributes document processing products in
Japan, Australia, New Zealand, and other areas of the Pacific
Rim. The 1997 third quarter reflects modest growth in Japan, due
to difficult economic conditions, and excellent growth in Fuji
Xerox' other Asian territories.
The pre-currency growth rates by type of revenue are as follows:
1996 1997 _
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
Total Revenues 4% 6% 5% 8% 6% 5% 6% 9%
Sales 3 6 7 12 7 5 6 12
Equipment(1) 7 9 6 14 10 10 11 21
Supplies 1 8 11 11 8 1 2 2
Paper (2) (7) (12) (7) (7) (9) (1) 8
Service/Rentals/
Outsourcing/Other 5 4 4 4 4 4 5 6
Service 1 (2) (3) (1) (1) (2) 1 2
Rentals 2 2 1 (4) - (11) (8) (10)
Doc. Outsourcing(2) 48 51 51 41 47 41 36 31
Finance Income 1 - 4 1 1 2 5 -
Memo:
Revenues Excluding
Equipment Sales 3 4 2 3 3 2 3 5
(1) Excluding OEM
(2) Excludes equipment in outsourcing contracts that are
accounted for as sales.
Equipment sales in the 1997 third quarter grew 21 percent
reflecting excellent growth in digital products, particularly
color copying and printing, the recently introduced Document
Centre black and white digital copiers, and production
publishing.
Supplies sales: The decline in growth in the first three quarters
of 1997 from the 1996 third and fourth quarters is due
principally to a reduction in sales of OEM printer cartridges
following the buildup of inventory for new products at OEM
customers.
Paper sales: Our strategy is to charge a spread over mill
wholesale prices to cover our costs and value added as a
distributor. Good revenue growth in the 1997 third quarter
reflects volume increases partially offset by moderating
industry-wide domestic price declines.
Combined service, rental, document outsourcing and other revenue
growth improved to 6 percent in the 1997 third quarter. The 31
percent growth in document outsourcing (excluding equipment in
outsourcing contracts accounted for as sales) continued to divert
revenues from service, rentals, finance income and supplies.
Service revenues grew 2 percent as the impact of higher machine
populations resulting from recent higher equipment sales was
partially offset by competitive price pressures. Rental revenues
continued to decline, due primarily to Latin American customers'
preference for purchase or document outsourcing rather than
rental.
Document Outsourcing revenues are included in Equipment Sales as
well as in Service/Rental/Document Outsourcing/Other. Where
document outsourcing contracts include revenue accounted for as
equipment sales, this revenue is included as Equipment Sales on
the income statement. All other document outsourcing revenue,
including service, equipment rental, supplies, paper, and labor,
are included in Service/Rentals/Outsourcing/Other on the income
statement. Growth in total document outsourcing revenue is
higher than the growth included in
Service/Rentals/Outsourcing/Other, reflecting an increase in the
proportion of equipment in outsourcing contracts accounted for as
sales.
Finance income: Our strategy for financing equipment sales in the
industrialized economies is to charge a spread over our cost of
borrowing and to lock in that spread by match funding the finance
receivables with borrowings of similar maturities. Good growth in
the financing of equipment sales in the U.S. and Latin America
has been partially offset by lower average interest rates.
Gross Profit and Expenses
The gross margins by revenue stream were as follows:
1996 1997 _
Q1 Q2 Q3 Q4 FY Q1 Q2 Q3
Total Gross
Margin 46.0% 47.9% 46.2% 47.1% 46.9% 46.5% 47.8% 46.6%
Sales 42.9 45.7 43.9 45.4 44.6 43.2 46.2 45.4
Service/Rent/
DocOut 49.0 50.4 48.8 49.3 49.4 49.9 49.7 48.0
Financing 49.0 49.5 48.3 51.0 49.5 48.9 49.2 47.3
The total gross margin increased by 0.4 percentage points in the
1997 third quarter from the 1996 third quarter.
The sales gross margin improved by 1.5 percentage points from the
1996 third quarter principally due to product mix and
productivity, partially offset by competitive pricing pressures.
The service, rentals and document outsourcing gross margin
declined by 0.8 percentage points from the 1996 third quarter due
primarily to continued pricing pressures and adverse currency
partially offset by productivity.
Research and development (R&D) expense increased 4 percent in the
1997 third quarter as we continue to invest in technological
development to maintain our premier position in the rapidly
changing document processing market. Xerox R&D is strategically
coordinated with that of Fuji Xerox which invested $537 million
in R&D in the 1996 full year, for a combined total of $1.6
billion.
Selling, administrative and general expenses (SAG) increased 5
percent in the 1997 third quarter. SAG was 29.4 percent of
revenue in the 1997 third quarter, a decrease of 0.8 percentage
points from the 1996 third quarter, primarily due to productivity
initiatives and expense controls.
Worldwide employment increased by 1,000 in the 1997 third quarter
to 90,100, primarily as a result of the net hiring of 500
employees for the company's fast-growing document outsourcing
business, 200 for increased sales coverage, and 200 for volume
related manufacturing.
The $3 million decrease in other expenses, net, from the 1996
third quarter was due to the non-recurrence of several one-time
charges in 1996 partially offset by increased non-financing
interest expense associated with our June 1997 acquisition of the
Rank Group's remaining interest in Xerox Limited. Also, we
reduced debt with the proceeds from $650 million of mandatorily
redeemable preferred stock issued through a trust in January
1997. This partially offset the increase in non-financing
interest expense because the after-tax impact of the dividend on
these securities is included in the income statement in
Minorities' Interests in the Earnings of Subsidiaries.
Income Taxes, Equity in Net Income of Unconsolidated Affiliates
and Minorities' Interests in the Earnings of Subsidiaries
Income before income taxes increased 18 percent to $450 million
in the 1997 third quarter from $383 million in the 1996 third
quarter.
The effective tax rate was 34.2 percent in the 1997 third quarter
compared with 36.0 percent in the 1996 third quarter. The
effective tax rate for the 1997 first nine months is 34.8 percent
and we expect the 1997 full-year tax rate to be in line with the
first nine months.
Equity in the net income of unconsolidated affiliates is
principally the Xerox Limited share of Fuji Xerox income. Total
equity in net income increased in the 1997 third quarter as the
underlying growth in Fuji Xerox was partially offset by the
adverse impact of currency translation.
Minorities' interests reduction in the 1997 third quarter was due
to our acquisition of the remaining interest in Xerox Limited,
effective in June, partially offset by the after tax impact of
the dividend on the mandatorily redeemable preferred stock
discussed above.
Effective July 1, 1997, we changed the functional currency for
our Brazilian operation from the U.S. dollar to the Brazilian
Real because we believe the Brazilian economy is no longer
considered hyperinflationary. The effect of this change on our
reported results is immaterial to both the Company's results of
operations and financial position in the 1997 third quarter.
In June 1997, the Company completed the acquisition of The Rank
Group's remaining 20 percent financial interest in Xerox Limited
and related companies for 940 million pounds sterling, or
approximately $1.5 billion. The transaction was funded entirely
by debt consisting of 500 million pounds sterling of third party
debt and 440 million pounds sterling of notes payable issued to
The Rank Group.
In February 1996, the board of directors authorized the
repurchase of up to $1 billion of Xerox common stock. Through the
1997 second quarter, the company had repurchased 8.5 million
shares for $422 million. As a result of the Xerox Limited
transaction, the repurchase program was suspended during the
second quarter as use of the company's financial resources to
fund the $1.5 billion acquisition of The Rank Group's remaining
interest in Xerox Limited produces greater value for Xerox
shareholders.
Effective 1997, Fuji Xerox changed its reporting period from a
fiscal year ending October 20 to a fiscal year ending December
20. The results of operations during the period between the end
of the 1996 fiscal year and the beginning of the new fiscal year
(the stub period) amounted to a gain of $8 million. The gain was
credited directly to retained earnings.
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128
"Earnings Per Share." Commencing with our fourth quarter
reporting, SFAS No. 128 will require us to present basic and
diluted earnings per share (EPS) on the face of the income
statement. The computation of basic EPS replaces primary EPS.
If we had implemented SFAS No. 128 during the third quarter, we
would have reported basic EPS of $0.94 and $2.74 for the quarter
and year to date, respectively, and diluted EPS of $0.89 and
$2.58 for the quarter and year to date, respectively.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" and No. 131, "Disclosures about Segments of
an Enterprise and Related Information." Commencing in 1998, SFAS
No. 130 will require companies to report comprehensive income and
SFAS No. 131 will require companies to report segment performance
as it is used internally to evaluate segment performance. These
statements merely add additional disclosure requirements.
Discontinued Operations
The net investment in the discontinued financial services
businesses which includes Insurance, Other Financial Services and
Third-Party Financing and Real Estate totaled $1,453 million at
September 30, 1997 compared with $2,124 million at December 31,
1996. The decrease primarily reflects the sales of Coregis
Group, Inc. (Coregis) and Industrial Indemnity Holdings, Inc.
(II), somewhat offset by scheduled funding of reinsurance
coverage to the Talegen Holdings, Inc. (Talegen) companies and
The Resolution Group, Inc. (TRG) by Ridge Reinsurance Limited
(Ridge Re) and interest for the period on the assigned debt. A
discussion of the discontinued businesses follows.
Insurance
In 1995, we recorded a $1,546 million after-tax charge in
connection with agreements to sell all of our "Remaining"
insurance companies, which included Coregis, Crum & Forster
Holdings, Inc. (CFI), II, Westchester Specialty Group, Inc.
(WSG), TRG and three insurance-related service companies.
On September 11, 1996, those transactions were terminated. No
additional charges are considered necessary as a result of the
termination. In September 1996, the Board of Directors of Xerox
formally approved a plan of disposal under which we have retained
investment bankers to assist us in the simultaneous disposition
of each of the Remaining insurance and service companies.
During 1997, we made significant progress in the disposition of
these companies, including the completion of the sales of three
of the five Remaining insurance companies as well as the
announced sale agreement for a fourth, and the completed
disposition of one service company. We expect to make an
announcement related to the disposition of the one remaining
insurance company, CFI, within the coming months. Specifically,
during 1997 the following has occurred:
- - In the first quarter, we sold certain assets of Apprise Corp.,
one of Talegen's insurance-related service companies. The
financial terms of this transaction were not material.
- - In the second quarter, we completed the sale of Coregis for
$375 million in cash and the assumption of $75 million in debt.
- - In the third quarter, we completed the sale of II for $365
million in cash, plus the assumption of $79 million in debt.
- - On September 18, 1997, we announced an agreement to sell WSG
for $333 million in cash, less transaction related costs
estimated to be $60 million. This transaction is subject to
customary closing conditions and regulatory approvals and is
expected to close before the end of January 1998.
- - On October 15, 1997 we completed the sale of TRG for $150
million in cash and $462 million in performance-based instruments
to an investor group led by the Chief Executive Officer of TRG.
The selling prices of the disposed companies were consistent with
the estimated values of the units when we discontinued the
insurance operations in 1995. During the disposal process, we
will continue to be subject to all business risks and rewards of
the remaining units. Until the remaining units are actually
sold, no assurances can be given as to the ultimate impact on our
total results from operations or whether the proceeds of sales
will equal their carrying value.
Xerox Financial Services, Inc. (XFSI) continues to provide
aggregate excess of loss reinsurance coverage to the current and
former Talegen/TRG units through Ridge Reinsurance Limited (Ridge
Re), a wholly owned subsidiary. As of October 1997, XFSI is
obligated to pay five remaining annual premium installments of
$45 million, plus finance charges for coverage totaling $1,109
million (which is net of 15 percent coinsurance). At September
30, 1997, Ridge Re had recognized approximately $632 million of
the available coverage.
The net investment in Insurance at September 30, 1997 totaled
$1,176 million compared with a balance of $1,846 million at
December 31, 1996. The decrease primarily reflects the sales of
Coregis and II, somewhat offset by contractual payments to Ridge
Re for annual premium installments and associated finance charges
and interest on the assigned insurance debt.
Property and Casualty Operating Trends
The industry's profitability can be significantly affected by
cyclical competitive conditions, judicial decisions affecting
insurers' liabilities, and by volatile and unpredictable
developments, including changes in the propensity of courts to
grant large awards, fluctuations in interest rates and other
changes in the investment environment (which affect market prices
of insurance companies' investments, the income from those
investments and inflationary pressures that may tend to affect
the size of losses). WSG and CFI's operating results have
historically been influenced by these industry trends, as well as
by their exposure to uncollectible reinsurance, which had been
greater than most other insurers.
Other Financial Services
The net investment in Other Financial Services (OFS) at September
30, 1997 was $124 million compared with $101 million at December
31, 1996. The increase in the investment primarily reflects the
effect of a transfer from Insurance which had no effect on the
total net investment in the discontinued financial services
businesses.
On June 1, 1995, XFSI completed the sale of Xerox Financial
Services Life Insurance Company and related companies (Xerox
Life). In connection with the transaction, OakRe Life Insurance
Company (OakRe), a wholly-owned XFSI subsidiary, assumed
responsibility, via Coinsurance Agreements, for existing Single
Premium Deferred Annuity (SPDA) policies issued by Xerox Life.
The Coinsurance Agreements include a provision for the assumption
(at their election) by the purchaser's companies, of all of the
SPDA policies at the end of their current rate reset periods. A
Novation Agreement with an affiliate of the new owner provides
for the assumption of the liability under the Coinsurance
Agreements for any SPDA policies not so assumed. Other policies
(of Immediate, Whole Life, and Variable annuities as well as a
minor amount of SPDAs) were sold and are now the responsibility
of the purchaser's companies.
As a result of the Coinsurance Agreements, at September 30, 1997,
OakRe retained approximately $1.7 billion of investment portfolio
assets (transferred from Xerox Life) and liabilities related to
the reinsured SPDA policies. Interest rates on these policies
are fixed and were established upon issuance of the respective
policies. Substantially all of these policies will reach their
rate reset periods through the year 2000 and will be assumed
under the Agreements as described above. Xerox Life's portfolio
was designed to recognize that policy renewals extended liability
"maturities," thereby permitting investments with average
duration somewhat beyond the rate reset periods. OakRe's
practice is to selectively improve this match over time as market
conditions allow.
In connection with the aforementioned sale, XFSI established a
$500 million letter of credit and line of credit with a group of
banks to support OakRe's coinsurance obligations. The term of
this letter of credit is five years and it is unused and
available at September 30, 1997. Upon a drawing under the letter
of credit, XFSI has the option to cover the drawing in cash or to
draw upon the credit line.
Third-Party Financing and Real Estate
Third-Party Financing and Real Estate assets at September 30,
1997 totaled $337 million, a $113 million reduction from the
December 31, 1996 level due primarily to the continued run-off
and sales of third-party assets. The proceeds were used to
reduce assigned debt to $134 million at September 30, 1997, a $89
million decrease from the year-end 1996 level.
Capital Resources and Liquidity
Total debt, including ESOP and discontinued operations debt not
shown separately in our consolidated balance sheets, was $13,206
million at September 30, 1997 or $758 million more than at
December 31, 1996. The changes in consolidated indebtedness
since year-end and versus the first nine months of 1996 are
summarized as follows:
(In millions) 1997 1996
Total Debt as of January 1 $12,448 $11,794
Non-Financing Businesses
Document Processing operations 173 553
Discontinued Businesses (506) 132
Total Non-Financing (333) 685
Financing Businesses (106) (15)
Total Operations (439) 670
Shareholder dividends 356 330
Acquisition of Additional Interest in RX 1,534 -
Mandatorily redeemable preferred stock (637) -
Equity redemption and other changes (56) 165
Total Debt as of September 30 $13,206 $12,959
The following table summarizes the changes in total equity during
the first nine months of 1997 and 1996:
(In millions) 1997 1996
Total equity as of January 1 $5,931 $5,396
Income from Continuing Operations 927 780
Shareholder dividends paid (356) (330)
Proceeds from Sale of Common Stock 130 85
Repurchase of common and preferred stock (116) (257)
Purchase of Minority Interest (723) -
Net proceeds from issuance of mandatorily
redeemable preferred stock 637 -
All other, net (202) (15)
Balance as of September 30 $6,228 $5,659
Non-Financing Operations
Operational cash flows are highly seasonal. Due primarily to
profit sharing payments and inventory build up, historically our
operations have used cash in the first half and generated cash
later in the year.
The following table summarizes Document Processing non-financing
operations cash generation and borrowing for the nine months
ended September 30, 1997 and 1996:
Cash Generated/(Borrowed)
Nine Months Ended September 30
(In millions) 1997 1996
Document Processing
Non-Financing:
Income $ 763 $ 663
Depreciation and amortization 517 528
Capital expenditures, net (286) (310)
Working capital/other (1,167) (1,434)
Total $ (173) $ (553)
Nine-month cash usage of $173 million was $380 million less than
in the first nine months of 1996 due primarily to higher net
income, and lower restructuring payments.
Financing Businesses
Financing businesses debt was reduced by $106 million and $15
million during the first nine months of 1997 and 1996,
respectively. This larger decline in 1997 reflects currency
translation effects related to the strength of the U.S. dollar
compared with the major European currencies largely offset by
volume growth.
Hedging Instruments
We have entered into certain financial instruments to manage
interest rate and foreign currency exposures. These instruments
are held solely for hedging purposes and include interest rate
swap agreements, forward exchange contracts and foreign currency
swap agreements. We do not enter into derivative instrument
transactions for trading purposes and we employ long-standing
policies prescribing that derivative instruments only be used to
achieve a set of very limited objectives.
Currency derivatives are primarily arranged in conjunction with
underlying transactions that give rise to foreign currency-
denominated payables and receivables; for example, an option to
buy foreign currency to settle the importation of goods from
suppliers, or a forward exchange contract to fix the U.S. dollar
value of a foreign currency-denominated loan. In addition, when
cost-effective, currency derivatives may be used to hedge balance
sheet exposures.
Revenues denominated in currencies where the local currency is
the functional currency are not hedged.
With regard to interest rate hedging, virtually all customer
financing assets earn fixed rates of interest. We "lock in" an
interest rate spread by arranging fixed-rate liabilities with
similar maturities as the underlying assets. Additionally,
customer financing assets in one currency are consistently funded
with liabilities in the same currency. We refer to the effect of
these conservative practices as "match funding" customer
financing assets. This practice effectively eliminates both the
risk of a major compression in interest margins if interest rates
increase and the opportunity for margin expansion if interest
rates decline.
More specifically, pay fixed-rate and receive variable-rate swaps
are typically used in place of more expensive fixed-rate debt.
Pay variable-rate and receive variable-rate swaps are used to
transform variable-rate medium-term debt into commercial paper or
LIBOR obligations. Additionally, pay variable-rate and receive
fixed-rate swaps are used from time to time to transform longer-
term fixed-rate debt into commercial paper or LIBOR-rate
obligations. The transactions performed within each of these
three categories enable cost-effective management of interest
rate exposures. The potential risk attendant to this strategy is
non-performance of a swap counterparty. We address this risk by
arranging swaps exclusively with a diverse group of strong-credit
counterparties, regularly monitoring their credit ratings,
determining the replacement cost, if any, of existing
transactions, and internally capping related exposures.
Our currency and interest rate hedging is typically unaffected by
changes in market conditions as forward contracts, options and
swaps are normally held to maturity consistent with our objective
to lock in currency rates and interest rate spreads on the
underlying transactions.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The information set forth under Note 9 contained in the "Notes to
Consolidated Financial Statements" on pages 13-15 of this
Quarterly Report, on Form 10-Q, is incorporated by reference in
answer to this item.
Item 2. Changes in Securities
During the quarter ended September 30, 1997, Registrant issued
the following securities in transactions which were not
registered under the Securities Act of 1933, as amended (the
Act):
(a) Securities Sold: on July 1, 1997, Registrant issued 1,393
shares of Common stock, par value $1 per share.
(b) No underwriters participated. The shares were issued to
each of the non-employee Directors of Registrant: B.R.
Inman, A.A.Johnson, V.E. Jordan, Jr., Y. Kobayashi,
H. Kopper, R.S. Larsen, J.D. Macomber, G.J. Mitchell,
N.J. Nicholas, Jr., J.E. Pepper, M.R. Seger and T.C.
Theobald.
(c) The shares were issued at a deemed purchase price of $78.875
per share (aggregate price $109,125), based upon the
market value on the date of issuance, in payment of the
quarterly Directors' fees pursuant to Registrant's
Restricted Stock Plan for Directors.
(d) Exemption from registration under the Act was claimed based
upon Section 4(2) as a sale by an issuer not involving a
public offering.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 3(a)(1) Restated Certificate of Incorporation of
Registrant filed by the Department of State of the State of
New York on October 29, 1996. Incorporated by reference to
Exhibit 3(a)(1) to Registrant's Quarterly Report on Form
10-Q for the Quarter Ended September 30, 1996.
Exhibit 3(b) By-Laws of Registrant, as amended through
June 11, 1997 (in electronic form only).
Exhibit 10(e) 1997 Restatement of Registrant's Unfunded
Retirement Income Guarantee Plan (in electronic form only).
Exhibit 10(f) 1997 Restatement of Registrant's Unfunded
Supplemental Retirement Plan (in electronic form only).
Exhibit 10(k) Registrant's Deferred Compensation Plan For
Directors, 1997 Amendment and Restatement (in electronic
form only).
Exhibit 10(l) Registrant's Deferred Compensation Plan For
Executives, 1997 Amendment and Restatement (in electronic
form only).
Exhibit 11 Computation of Net Income per Common Share.
Exhibit 12 Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 27 Financial Data Schedule (in electronic form
only).
(b) A current report on Form 8-K dated June 30, 1997, August 1,
1997 and September 18, 1997 reporting Item 5 "Other Events" was
filed during the quarter for which this Quarterly Report is
filed.
SIGNATURES
Pursuant to the requirements 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
(Registrant)
_____________________________
Date: November 12, 1997 By Philip D. Fishbach
Vice President and Controller
(Principal Accounting Officer)