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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, 1996
( ) 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
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 or 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, 1997 was: $21,775,109,185.
(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, 1997
Common Stock, $1 Par Value 324,016,042 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 1996 Annual Report to Shareholders I & II
Xerox Corporation Notice of 1997 Annual Meeting of III & IV
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).
This Form 10-K contains certain forward-looking statements and information
relating to the Company that 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 Company 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 Company does not intend to
update these forward-looking statements.
PART I
Item 1. Business
Overview
Xerox Corporation (Xerox or the Company) is The Document Company and a leader
in the global document market, providing document solutions that enhance
business productivity. References herein to "us" or "our" refer to Xerox and
consolidated subsidiaries unless the context specifically requires otherwise.
We distribute our products in the Western Hemisphere through divisions and
wholly-owned subsidiaries. In Europe, Africa, the Middle East and parts of
Asia including Hong Kong, India and China, we distribute through Rank Xerox
Limited and related companies (Rank Xerox) in which we have an 80 percent
financial interest and The Rank Group Plc (Rank Group) has a 20 percent
financial interest. In Japan and other areas of the Pacific Rim, Australia and
New Zealand, document processing products are distributed 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. On February 28, 1995,
we paid Rank Group 620 million pounds sterling, or $972 million, to increase
our financial interest in Rank Xerox to 80 percent from 67 percent.
Beginning in 1995, the results of our Insurance operations were accounted for
as discontinued operations. The Document Processing business is now the only
component of continuing operations.
Our 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. We believe that documents will play a central role in business,
government, education and other 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 in which we operate. Document Processing operations employed 86,700
people worldwide at year-end 1996.
In 1993, we announced a worldwide Document Processing restructuring program to
significantly reduce our cost base and to improve productivity. The activities
associated with this program have reduced employment by 14,000. We have
achieved our restructuring program objectives with pre-tax cost reductions of
approximately $350 million in 1994, $650 million in 1995 and $770 million in
1996. A portion of the savings is being reinvested to reengineer business
processes, to support the expansion in growth markets and to mitigate pricing
pressures.
Continuing Operations - Document Processing
The Document Processing Strategy
We believe 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.
As The Document Company, we believe that by helping our customers navigate and
manage the world of documents, we can help them improve their productivity and
grow their businesses. We help customers make documents better, make better
documents, and work better with documents.
We create customer value by providing innovative document technologies,
products, systems, services and solutions that allow our 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 the world.
- - 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.
We have formed alliances to bring together the diverse infrastructures that
currently exist and to nurture the development of an open document services
environment to support complementary products from our partners and customers.
We are working with more than 50 industry organizations to make office,
production and electronic printing an integrated, seamless part of today's
digital work place.
Market Overview
We estimate that the global document market that we serve, excluding Japan and
the Pacific Rim countries served by Fuji Xerox, was over $100 billion in 1996
and is estimated to grow to about $175 billion in 2000.
We have traditionally had a strong position in the general office document
market, which is expected to grow at 7 percent per year, or about two to three
times real economic growth. The remaining production systems market segments,
which include production publishing and production printing, are expected to
grow at a substantially higher rate. With our many new product introductions
during this decade, our participation in the global document market 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, the increase in customer requirements for network and distributed
printing, and the accelerating demand for color documents.
Xerox Focus
We believe that our competitive advantages lie in our ability to continually
improve the features and performance of our products and services based on
demonstrated customer needs; competitive pricing; our excellent reputation for
performance and service; our substantial on-going investment in research and
development; expanded sales coverage through our direct sales force, agents
and retail chains; our leadership position in the rapidly growing document
outsourcing business; maintenance of our strong market position in emerging
markets; and an expanded presence in the burgeoning home office market. As a
result, we believe we are well positioned to participate fully in the
anticipated growth in the market segments in which we compete.
Digital Products
Our digital products fall into four categories: black-and-white production
publishing, black-and-white laser printing, color laser copying and printing,
and black-and-white digital office systems.
Production Publishing
The era of production publishing was launched in 1990 when we announced the
DocuTech family which was a major step beyond our traditional reprographics
market into the publishing industry. We estimate that the black-and-white
digital production publishing market was $2 billion in 1996 and is estimated
to grow to over $4 billion in 2000. Having installed to date more than 14,000
systems all over the world, our production publishing revenues in 1996 were
$1.8 billion.
Digital production publishing technology is increasingly replacing older,
traditional short-run offset printing as customers seek improved productivity
and cost savings, faster turnaround of document preparation, and the ability
to print documents "on demand." We offer the widest range of solutions
available in the marketplace - from dial-up lines through the Internet to
state-of-the-art networks - and we are committed to expanding these print-on-
demand solutions as new technology and applications are developed.
The DocuTech family of digital publishers scans hard copy and converts it into
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 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. Further time can be saved, and frequently significant shipping costs,
by transmitting electronically and printing where the documents are required.
DocuTech prints high-resolution (600 dots per inch) pages 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.
The concept of print-on-demand took another major step in 1995 when we
introduced the 6135 Production Publisher. It makes print-for-one publishing
practical; personalized publishing runs can now be as short as one or two
prints.
Laser Printing
We estimate that the high-end black-and-white laser printing market was over
$6 billion in 1996 and is expected to grow to about $10 billion in 2000. Our
revenues from high-end black-and-white laser printers grew 7 percent in 1996
to $2.1 billion.
This market has largely consisted of high-end host-connected printers and low-
end desktop printers. We expect 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 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 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.
We have had a strong position in the high-end, high-volume electronic printing
market segment since 1977. We are well positioned to capitalize on the growth
in the electronic printing market because of both our innovative technologies
and our understanding of customer requirements for distributed printing from
desktop and host computers. Our goal is to integrate office, production and
data-center electronic printing into a single, seamless, user-friendly
network.
Xerox pioneered and continues to be a worldwide leader in electronic laser
printing, which combines computer, laser, communications and xerographic
technologies. We market a broad line of robust printers with speeds that
range from five pages per minute to the industry's fastest cut-sheet printer
at 135 pages per minute, and continuous-feed production printers at speeds up
to 420 pages per minute. 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 our
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 pages per minute. 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.
During 1995, we significantly expanded our opportunities with the introduction
of two major new printer series that will redefine our role in the electronic
production printing industry. With the DocuPrint CF Series family, we entered
the market for very high-volume, continuous-feed printers at speeds up to 420
pages per minute. The new DocuPrint IPS Series makes the IBM Advanced
Function Presentation (AFP) architecture directly available to our production
printing customers.
Color Laser Copying and Printing
We estimate that the color laser copying and printing market was $5 billion in
1996 and is expected to grow to $14 billion in 2000. Our revenues from color
laser copiers and printers grew 59 percent in 1996 to almost $1 billion.
The use of color originals in the office is accelerating. Independent studies
have concluded that color documents are more effective in communicating
information and that decision-maker performance improves with the use of color
documents. 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.
The color market has largely consisted of ink-jet and laser copiers and
printers. Ink-jet technology offers very low equipment cost but is slow and
lacks the image quality that most customers require for important documents
such as presentations and proposals. Laser copiers and printers offer near-
offset image quality, excellent running speeds, and the accessories necessary
to produce finished sets.
We entered the color laser market in 1991 with the introduction of the Xerox
5775 color copier/printer and the 4700 printer, both of which print full-color
at 7.5 pages per minute. We have since expanded the product line with the 4900
color laser printer, which prints full color at three pages per minute; the
MajestiK color copier/printer series, which print full color at 6 pages per
minute; the XPrint family of networked desktop color laser printers, which
print at resolutions up to 600 x 600 dots per inch; and the Regal color
copier/printer, which prints full color at 9 pages per minute.
The DocuColor 40, which was introduced in early 1996, copies and prints at 40
full-color pages per minute and is the industry's fastest and most affordable
digital color document production system. In less than a full year, the
DocuColor 40 achieved a market share of approximately two-thirds of the
installations for the total production color industry and 50 percent of the
installed population of production color products.
Digital Office Systems
The volume of paper documents used in the office continues to grow. Pages per
worker per day in the US have doubled in the last decade and productivity has
been impaired by the need to manage documents on computer monitors and as
hard-copy originals.
We intend to help customers improve productivity by controlling their
documents from a common interface; managing from the desktop; eliminating
gaps, steps and devices in the work process; and moving smoothly from digital
to paper and back.
Our strategy is, first, to build from our current strength, the copier. We
know how to design and build them with superior marking, paper handling and
finishing technology. We know our customers, their requirements and how to
sell to them. During 1997, we are introducing new stand-alone digital copiers
that will have all the features of our traditional light lens copiers, plus
many advantages, including improved image quality, faster scanning, fewer
controls and significantly reduced downtime. These digital copiers will sell
for a modest premium over light lens copiers.
Second, we will upgrade these copiers to digital office systems and connect
them to local and wide-area networks, as customers require, to gain
incremental volume from computer printing and ultimately to replace desktop
printers and single purpose copiers and faxes. The upgrades will have
compelling economics versus the alternative of purchasing comparable printers
and faxes.
We estimate that the digital copier and digital office systems market was over
$1 billion in 1996 and is estimated to grow to $14 billion in 2000. In 1996,
we entered the market for digital copiers and digital office systems on a
limited basis and our revenues were almost $100 million.
Our digital office systems, known as Document Centre Systems, were introduced
in late 1995 and bring production publishing productivity to the office. This
new category of robust and extensible systems combines many capabilities -
printing, scanning, faxing and copying documents - into a single digital
resource that can be accessed from either a personal computer or on a walk-up
basis. With interactive software, a user can easily control the various steps
of the document cycle - document input, management and output - from the
desktop. The seamless integration of services and interoperability will bring
new levels of efficiency to the office. These new systems are a portal to the
network and allow office workers to navigate between digital and paper
documents, share information and knowledge, and collaborate with other members
of their work groups. The multi-tasking architecture allows Document Centre
Systems to perform multiple functions concurrently.
The two initial models in the Document Centre product family are equipped with
integrated scanners for digital copying and printing services, accessible
either from the PC desktop or from the user interface on the devices
themselves. The Document Centre System 35 is designed for work groups of up
to 50 people, and copies and prints at 35 pages per minute with resolutions of
up to 600 by 2,400 dots per inch. It provides two-sided printing and several
document finishing options. The Document Centre System 20 is targeted for
work groups of up to 20 people, and copies and prints at 20 pages per minute
with 400 dots per inch resolution. Fax services, from the desktop or at the
device, are standard.
Light Lens Copying
We estimate that the market for light lens copying was approximately $33
billion in 1996 and that it will decline to $28 billion in 2000. Our revenues
from light lens copiers declined 1 percent in 1996 to over $9.7 billion.
We market the broadest line of light lens copiers and duplicators in the
industry, ranging from a three copies-per-minute personal copier to a 135
copies-per-minute fully-featured duplicator to special copiers designed for
large engineering and architectural drawings up to 3 feet by 4 feet in size.
Many of our state-of-the-art products have improved ease of use, reliability,
copy quality, job recovery and ergonomics as well as productivity-enhancing
features, including zoom enlargement and reduction, highlight color, copying
on both sides of the paper, and collating and stapling which allow the
preparation of completed document sets.
We have a strong position with major accounts who demand a consistently high
level of service worldwide. Our competitive advantages include a focus on
customer call response times, diagnostic equipment that is state-of-the-art
and availability of 24-hour-a-day, seven-day-a-week service.
We also are increasing our leadership position in small commercial accounts,
the most competitive copier market segment, through marketing programs such as
sales through independent agents, retail outlets and trade associations like
the American Medical Association, which represents more than two million
current and prospective customers.
The market for commercial copiers is expanding rapidly in emerging countries
in Latin America, Eastern Europe, the Commonwealth of Independent States
(formerly the Soviet Union), Africa, China and India. Although 1996 revenue
growth slowed because of difficult economic environments, all of these markets
grew faster than the growth in the developed markets over the past five years.
Although we expect that light lens copiers will increasingly be replaced by
digital copiers and Document Centre Systems, we intend to continually upgrade
our light lens products to maintain a leadership position in the industry.
Other Products
We also offer a wide range of other document processing products including
ink-jet and electrostatic printers, multifunction products, facsimile
products, scanners, personal computer and workstation software, and integrated
systems solutions.
We also sell cut-sheet paper to our customers for use in their Document
Processing products.
Summary of Revenues by Product Category
The following table summarizes our revenues by major product category. The
revenues for light lens copiers and digital products include equipment and
supply sales, service and rental revenues, and finance income. These revenues
exclude the impact of foreign currency exchange rate fluctuations which are
shown combined with the revenues from paper and other products.
Year ended December 31 (in billions) 1996 1995 1994
Light lens copiers $ 9.7 $ 9.8 $ 9.7
Digital products 5.3 4.3 3.7
Paper, other products, currency 2.4 2.5 1.7
Total revenues $17.4 $16.6 $15.1
Xerox Competitive Advantages
Customer Satisfaction
Our highest priority is customer satisfaction. Our 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. We regularly survey customers on their
satisfaction, measure the results, analyze the root causes of dissatisfaction,
and take steps to correct any problems.
Because of our emphasis on customer satisfaction, we offer a Total
Satisfaction Guarantee, 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 at least three years
to equipment acquired from and continuously maintained by Xerox or its
authorized agents.
Quality
We were an early pioneer in total quality management and are 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, we have won top quality awards in Argentina,
Australia, Belgium, Brazil, Canada, China (Shanghai), Colombia, France,
Germany, Hong Kong, India, Ireland, Mexico, the Netherlands, Norway, Portugal,
the United Kingdom, and Uruguay. Our "Leadership Through Quality" program has
enabled us to improve productivity, 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 our document
processing strategy. Our research scientists are deeply involved in the
formulation of corporate strategy and key business decisions. They regularly
meet with customers and have dialogues with our business divisions to ensure
they understand customer requirements and are focused on products that can be
commercialized.
In 1996, R&D expense was $1,044 million compared with $949 million in 1995 and
$895 million in 1994. We expect to increase our investment in technological
development in 1997 and over the longer term to maintain our premier position
in the rapidly changing document processing market. Our R&D spending is
strategically coordinated with Fuji Xerox. The R&D investment by Fuji Xerox
was $537 million in 1996, bringing the total to $1.6 billion.
Marketing
Xerox document processing products are principally sold directly to users by
our worldwide sales force of approximately 13,000 employees. We also market
through a network of independent agents, dealers, distributors and value-added
resellers and have 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 our 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
We have a worldwide service force of approximately 25,000 employees. In our
opinion, this direct service force is a significant competitive advantage:
the service force is continually trained on our new products and its
diagnostic equipment is state-of-the-art. 24-hour-a-day, seven-day-a-week
service is available in most metropolitan areas in the United States. We are
able to guarantee a consistent level of service nationwide and worldwide
because our service force is not focused exclusively on metropolitan areas and
it does not rely on independent local dealers for service.
Revenues
Our total document processing revenues were $17.4 billion in 1996, of which 49
percent were generated in the United States, 31 percent in Europe, and 20
percent in the remainder of the world (excluding the unconsolidated $8.1
billion of Fuji Xerox revenues in Japan and much of the Pacific Rim).
Revenues from supplies, paper, service, rentals, facilities management and
other revenues, and income from customer financing represented 66 percent of
total revenues in 1996. Because these revenues are derived from the installed
base of equipment and are therefore less volatile than equipment sales
revenues, they provide significant stability to overall revenues. Growth in
these revenues is primarily a function of the growth in our installed
population of equipment, usage and pricing. The balance of our 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 of our customers have their equipment serviced by and use supplies sold
by us. The market for cut-sheet paper is highly competitive and revenue
growth is significantly affected by pricing. Our strategy is to charge a
spread over mill wholesale prices. After a number of years of decline, rental
revenues were essentially flat during 1996, 1995, and 1994.
Our document outsourcing business provides printing, publishing, duplicating
and related services at more than 4,000 customer locations in 36 countries,
including legal and accounting firms, financial institutions, insurance
agencies and manufacturing companies. Our revenues from these services, which
are largely in the U.S., increased 39 percent to $1.3 billion in 1996.
We offer our 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.
While competition for this business from banks and other finance companies
remains extensive, we actively market our equipment financing services on the
basis of customer service, convenience and competitive rates. Approximately
80 percent of U.S. equipment sales and 75 percent of European equipment sales
are financed through Xerox. 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
Our international operations account for 51 percent of Document Processing
revenues. Our largest interest outside the United States is Rank Xerox.
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. Fuji Xerox develops, manufactures and
distributes document processing products in Japan and other areas of the
Pacific Rim, Australia and New Zealand.
Our financial results by geographical area for 1996, 1995 and 1994, which are
presented on pages 29, 30, and 52 of the Company's 1996 Annual Report to
Shareholders, are hereby incorporated by reference in this document in partial
answer to this item.
Discontinued Operations - Insurance and Other Financial Services
The discussion in the first thirteen paragraphs under the caption
"Discontinued Operations - Insurance and Other Financial Services" on pages 43
through 45 and under the captions "Other Financial Services" and "Third-Party
Financing and Real-Estate" on page 47 set forth under the caption "Financial
Review" in the Company's 1996 Annual Report to Shareholders is hereby
incorporated by reference in this document in partial answer to this item.
As used herein, the "Remaining insurance companies" include Coregis Group,
Inc., Crum & Forster Holdings, Inc., Industrial Indemnity Holdings, Inc.,
Westchester Specialty Group, Inc., and The Resolution Group, Inc. ("TRG").
Property and Casualty Reserves
Overview
Losses from claims and related claims handling and legal expense comprise the
majority of costs from providing insurance products. Therefore, unpaid losses
and loss expenses are generally the largest liability 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. The Remaining insurance companies, like most 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. Loss development patterns vary significantly by type of
insurance coverage and are affected by the economic, social, judicial,
weather-related and geological conditions in different geographic areas.
In order to moderate the potential impact of unusually severe or frequent
losses, the Remaining insurance companies cede (i.e., transfer) through
reinsurance mechanisms a portion of their gross policy premiums to reinsurers
in exchange for the reinsurer's agreement to share a portion of the covered
losses. Although the ceding of insurance does not discharge the original
insurer from its primary liability to its policyholder, the reinsurer that
accepts the risk assumes an obligation to the original insurer. The ceding
insurer retains a contingent liability with respect to reinsurance ceded to
the extent that the reinsurer might not be able to meet its obligations.
The net liability retained by the Remaining insurance companies on individual
risks varies by product and by the nature of the risk. Insured liabilities
can be reinsured either by treaty, wherein reinsurers agree in advance to
provide coverage above retained limits or for a specified percentage of losses
attributable to specific products, or by facultative arrangements, wherein
reinsurance is provided for individual risks based on individual negotiations.
Reserve provisions are established by the Remaining insurance companies to
provide for the estimated level of claim payments which will be made under the
policies they write. Over the policy period, as premiums are earned, a
portion of the premiums is set aside as gross loss and loss expense reserves
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
established for internal and external loss expenses associated with handling
the claims inventory. These expenses are characterized as "allocated loss
expenses" when they are attributable to a specific claim or series of claims
and "unallocated loss expenses" when not similarly attributable. When a claim
is reported, case reserves are established on the basis of all 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 (net of
uncollectible reinsurance reserves)and salvage and subrogation on those
reserves.
The effect of inflation on gross reserves is considered implicitly through
utilization of historical paid loss and loss expense development when
estimating the liability for unpaid losses and loss expenses by using
actuarial methods. The effect of inflation on individual case basis reserves
reflects the direction of economic price levels.
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.
Monitoring of Insurance Reserves
Gross and net reserves for business written in both current and prior years is
continually monitored by the Remaining insurance companies, and senior
management of Talegen Holdings, Inc. ("Talegen") reviews these reserves on a
periodic basis. Each of the Remaining insurance companies employs experienced
actuarial staff, who as fellows of the Casualty Actuarial Society and members
of the American Academy of Actuaries, are qualified loss reserve specialists
who perform regular actuarial reviews of claim development and resulting
reserve requirements. On a semi-annual or more frequent basis, detailed
analyses of gross reserves, ceded reserves and reserves net of reinsurance are
conducted by line of business and accident year. Actual claims activity is
monitored quarterly and compared to expected levels to detect variances or
trends indicating changes in reserve requirements. When unique or special
reserve issues are identified, the Remaining insurance companies and/or
Talegen routinely seek additional outside expertise from a variety of
consulting actuaries. In addition, at year end, the reserves for each of the
Remaining insurance companies are independently analyzed and certified by an
outside actuary appointed by the Remaining insurance company's Board of
Directors.
Overall reserve levels are affected by the types of 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. Such factors
include increased damage awards by the courts, known changes in judicial
interpretations of legal liability for asbestos, environmental and other
latent exposure claims and changes in judicial interpretation of the scope of
coverage provided by general liability and umbrella policies. 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 Remaining insurance companies made significant use of reinsurance
during the 1970's and early 1980's. Since that time, the Remaining insurance
companies have generally increased the portion of business they retain while
reducing the number of reinsurers used for their reinsurance contracts. During
1996 and 1995, excluding the reinsurance ceded to pools, associations and
similar organizations, 88% and 85%, respectively, of total written premiums
ceded to reinsurers were placed with approximately 35 reinsurers.
Talegen and the Remaining insurance companies have reinsurance security
committees composed of senior management who approve those reinsurers with
whom Talegen and the Remaining insurance companies will do business. The
criteria under which such approvals are granted have become increasingly
restrictive over the past several years.
The potential uncollectibility of ceded reinsurance has been an industry-wide
issue. With respect to the management of recoveries due from reinsurers, the
Remaining insurance companies operate under common guidelines for the early
identification of potential collection problems and they utilize the services
of the Resolution Reinsurance Service Company (a subsidiary of TRG) which
employs a specialized group of work-out experts to aid in the more
complicated cases. This unit aggressively pursues collection of reinsurance
recoverables through mediation, arbitration and, where necessary, litigation
to enforce the Remaining insurance companies contractual rights 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 the financial difficulties
that some reinsurers can experience. Based upon the review of financial
condition and assessment of other available information, the Remaining
insurance companies maintain a provision for uncollectible amounts due from
reinsurers. The balance of reinsurance recoverable is considered to be valid
and collectible.
Ridge Re Coverage
Under the terms of the reinsurance coverage provided by Ridge Reinsurance
Limited ("Ridge Re") and subject to the limits established for each of the
Remaining insurance companies, Ridge Re will reimburse the Remaining insurance
companies for 85% of net aggregate increases, if any, to ultimate net unpaid
loss and loss expenses and uncollectible reinsurance reserves which develop on
its 1992 and prior accident years as carried at December 31, 1992 (net of all
salvage, subrogation and other recoverables). At December 31, 1996, Ridge Re
recognized approximately $650 million of the $1,245 million excess of loss
reinsurance coverage estimated to be required based on actuarial projections.
The Ridge Re coverage is guaranteed by Xerox Financial Services, Inc., and,
subject to certain commutation provisions, remains in effect until all 1992
and prior accident year claims are paid. Cessions to Ridge Re, while
beneficial to the Remaining insurance companies, do not result in a benefit to
the Insurance segment or consolidated Xerox accounts.
Statutory and GAAP Reporting of Net Unpaid Losses and Loss Expenses
The liability for net unpaid losses and loss expenses required by generally
accepted accounting principles ("GAAP") differs from the liability reported in
accordance with Statutory Accounting Practices ("SAP"). Because not all GAAP
adjustments to the recorded SAP liability 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 10 on pages 52 through 55 of the Company's 1996 Annual Report to
Shareholders, which is hereby incorporated by reference in this document in
partial answer to this item, the net liability for unpaid losses and loss
expenses is reconciled for each of the years in the three-year period ended
December 31, 1996. Included therein are current year and prior year
development data.
As a result of claim activity during 1996 and after reflection of prior
experience, it is management's judgment that the total net liability for
unpaid losses and loss expenses at December 31, 1996 is reasonably stated.
The loss and loss expense reserve development table illustrates the
development of statutory balance sheet liabilities for 1986 through 1996 for
the Remaining insurance companies before cessions to Ridge Re. Net unpaid
loss and loss expense reserves and accident year development have been
restated to exclude the reserves of Constitution Reinsurance Corporation and
Viking Insurance Company of Wisconsin, which were sold during 1995. The first
line of the table is the estimated GAAP liability for unpaid losses and loss
expenses, net of reinsurance recoverable, recorded at the balance sheet date
for each year. The second line on the table reconciles the GAAP liability for
net unpaid losses and loss expenses to the SAP liability for unpaid losses and
loss expenses. The lower section of the table shows the updated amount of the
previously recorded SAP liability based on experience as of the close of each
succeeding year.
The estimate for unpaid losses and loss expenses 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, as
calculated on a statutory basis, for all prior calendar years. The effect as
calculated under GAAP on income for the latest three years is shown in Note 10
on pages 52 through 55 of the Company's 1996 Annual Report to Shareholders,
which is hereby incorporated by reference in this document in partial answer
to this item. These changes in estimates have been reflected in the Remaining
insurance companies' calendar year operating results. Because the Remaining
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
deficiencies or redundancies based solely on this table.
Loss and Loss Expense Reserve Development
Year ended December 31 (in millions) 1986 1987 1988 1989 _
Liability for unpaid losses and loss
expenses - GAAP (net of reinsurance) $ 4,127 $ 4,824 $ 5,200 $ 5,637
GAAP to SAP differences (256) (241) (208) (215)
Liability for unpaid losses and loss
expense - SAP (net of reinsurance) 3,871 4,583 4,992 5,422
Paid (cumulative) as of:
End of year - - - -
One year later 1,187 1,323 1,246 1,560
Two years later 2,080 2,188 2,269 2,635
Three years later 2,701 2,933 3,043 3,690
Four years later 3,224 3,472 3,854 4,018
Five years later 3,611 4,150 4,053 4,508
Six years later 4,180 4,316 4,432 4,887
Seven years later 4,278 4,571 4,751 5,159
Eight years later 4,476 4,859 4,985
Nine years later 4,720 5,066
Ten years later 4,904
Liability estimated as of:
End of year 3,871 4,583 4,992 5,422
One year later 3,893 4,681 5,052 5,611
Two years later 4,314 4,870 5,247 5,591
Three years later 4,527 5,168 5,171 6,408
Four years later 4,928 5,073 5,953 6,329
Five years later 4,803 5,832 5,903 6,428
Six years later 5,495 5,854 6,029 6,770
Seven years later 5,546 5,959 6,381 7,049
Eight years later 5,673 6,314 6,666
Nine years later 6,045 6,598
Ten years later 6,322
Deficiency $(2,451) $(2,015) $(1,674) $(1,627)
End of Year:
Gross liability
Reinsurance recoverable
Net liability
One Year Later:
Gross re-estimated liability
Re-estimated recoverable
Net re-estimated liability
Two Years Later:
Gross re-estimated liability
Re-estimated recoverable
Net re-estimated liability
Three Years Later:
Gross re-estimated liability
Re-estimated recoverable
Net re-estimated liability
Four Years Later:
Gross re-estimated liability
Re-estimated recoverable
Net re-estimated liability
Gross cumulative deficiency
1990 1991 1992 1993 1994 1995 1996 _
$ 5,848 $ 5,743 $ 6,109 $ 5,972 $ 5,618 $ 6,471 $ 6,327
(287) (299) (370) (254) (216) (827) (625)
5,561 5,444 5,739 5,718 5,402 5,644 5,702
- - - - - - -
1,542 1,721 1,080 1,303 1,242 1,173
2,882 2,518 2,153 2,264 2,142
3,412 3,381 2,939 2,969
4,062 4,008 3,480
4,563 4,418
4,894
5,561 5,444 5,739 5,718 5,402 5,644 5,702
5,658 6,340 5,734 5,711 5,944 5,903
6,484 6,274 5,771 6,216 6,165
6,370 6,326 6,230 6,410
6,429 6,747 6,401
6,803 6,957
7,057
$(1,496) $(1,513) $ (662) $ (692) $ (763) $ (259) $ -
$ 9,469 $ 8,526 $ 7,849 $ 8,143 $ 8,337
3,730 2,808 2,447 2,499 2,635
5,739 5,718 5,402 5,644 5,702
9,444 8,590 8,616 8,753
3,710 2,879 2,672 2,850
5,734 5,711 5,944 5,903
9,482 9,316 9,154
3,711 3,100 2,989
5,771 6,216 6,165
10,188 9,810
3,958 3,400
6,230 6,410
10,649
4,248
6,401
$(1,180) $(1,284) $(1,305) $ (610) $ -
Asbestos, Environmental and Other Latent Exposure Claims
The discussion under the captions "Latent Exposures" and "Reserves for the
Remaining Insurance Companies" on pages 46 through 47 in the Company's 1996
Annual Report to Shareholders is hereby incorporated by reference in this
document in partial answer to this item.
Item 2. Properties
The Company owns a total of eleven principal manufacturing and engineering
facilities and leases an additional such facility. 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 Company, there are numerous facilities which encompass
general offices, sales offices, service locations and distribution centers.
The principal owned facilities are located in the United States, England, and
Mexico. The principal leased facilities are located in the United States,
Brazil, Canada, England, Mexico, France, Germany and Italy.
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 15 "Litigation" on pages 63-64 of the
Company's 1996 Annual Report to Shareholders is incorporated by reference in
this document in answer to this item.
In the action by the independent service organizations, in a revised expert
report prepared, pursuant to Rule 26(a)2)B) of the Federal Rules of Civil
Procedure, an accountant retained by plaintiffs as an expert indicated that he
plans to testify at trial that, allegedly as a result of Xerox' conduct,
plaintiffs have lost profits of approximately $75 million.
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 1996 Annual Report to Shareholders is hereby incorporated by
reference in this document in answer to this Item:
Caption Page No.
Stock Listed and Traded 71
Dividends and Stock Prices 71
Eleven Years in Review - Common Shareholders
of Record at Year-End 70 and 71
Item 6. Selected Financial Data
The following information, as of and for the five years ended December 31,
1996, as set forth and included under the caption "Eleven Years in Review" on
pages 70 and 71 of the Company's 1996 Annual Report to Shareholders, is hereby
incorporated by reference in this document in answer to this Item:
Revenues
Income (loss) from continuing operations
Primary earnings (loss) per common share from continuing operations
Total assets
Long-term debt
Preferred stock
Dividends declared
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information set forth under the caption "Our Results of Operations and
Financial Condition" under the caption "Financial Review" on pages 27-34, 36-
41, and 43-47 of the Company's 1996 Annual Report to Shareholders other than
the pictures and captions to the pictures 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 26, 35, 42, 48-67, and 69 of the
Company's 1996 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 68 of the Company's 1996 Annual Report to
Shareholders.
The financial statement schedule required herein is 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 1997 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* 58 Chairman of the Board, Chief 1991 1983
Executive Officer and Chairman
of the Executive Committee
William F. Buehler 57 Executive Vice President and 1995 1991
Chief Staff Officer
A. Barry Rand 52 Executive Vice President, 1992 1986
Operations
Barry D. Romeril 53 Executive Vice President and 1993 1993
Chief Financial Officer
Stuart B. Ross 59 Executive Vice President; 1990 1979
Chairman and Chief Executive
Officer, Xerox Financial
Services, Inc.
Allan E. Dugan 56 Senior Vice President, 1992 1990
Corporate Strategic Services
John A. Lopiano 58 Senior Vice President; President, 1995 1993
Production Systems Group
Mark B. Myers 58 Senior Vice President, Corporate 1992 1989
Research and Technology
David R. Myerscough 56 Senior Vice President; 1996 1989
Corporate Business Strategy
* Member of Xerox Board of Directors.
Executive Officers of Xerox, Continued
Year
Appointed
to Present Officer
Name Age Present Position Position Since_
Richard S. Paul 55 Senior Vice President and 1992 1989
General Counsel
Brian E. Stern 49 Senior Vice President; President, 1996 1993
Office Document Products Group
Eunice M. Filter 56 Vice President, Treasurer 1990 1984
and Secretary
Philip D. Fishbach 55 Vice President and Controller 1995 1990
James H. Lesko 45 Vice President; President, 1996 1993
Desktop Products Group
Carlos Pascual 51 Vice President; President, 1995 1994
U.S. Customer Operations
Each officer named above, with the exception of Barry D. Romeril, has been an
officer or an executive of Xerox or its subsidiaries for at least the past
five years.
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, Plc.
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 Item 8 financial statement schedules being filed herewith or
incorporated herein by reference are set forth in the Index to Financial
Statements and Schedule included herein.
(3) The exhibits filed herewith or incorporated herein by reference are
set forth in the Index of Exhibits included herein.
(b) A Current Report on Form 8-K dated October 31, 1996 reporting Item 5
"Other Events" was 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
1997 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 27, 1997
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 27, 1997
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/ B. R. Inman Director
/s/ Yotaro Kobayashi Director
/s/ Ralph S. Larsen Director
/s/ John D. Macomber Director
/s/ George J. Mitchell 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 23, 1997, we reported on the consolidated balance sheets
of Xerox Corporation and consolidated subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of income and cash flows for each
of the years in the three-year period ended December 31, 1996, as contained in
the Xerox Corporation 1996 Annual Report to Shareholders on pages 26, 35, 42,
and 48-67. These consolidated financial statements and our report thereon are
incorporated by reference in the 1996 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 schedule
listed in the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
January 23, 1997
Index to Financial Statements and Schedule
Financial Statements:
Consolidated statements of income of Xerox Corporation and subsidiaries for
each of the years in the three-year period ended December 31, 1996
Consolidated balance sheets of Xerox Corporation and subsidiaries as of
December 31, 1996 and 1995
Consolidated statements of cash flows of Xerox Corporation and subsidiaries
for each of the years in the three-year period ended December 31, 1996
Notes to consolidated financial statements
Report of Independent Auditors
Quarterly Results of Operations (unaudited)
The above consolidated financial statements, related notes, report
thereon and the quarterly results of operations which appear on pages
26, 35, 42, 48-67, 68, and 69 of the Company's 1996 Annual Report to
Shareholders are hereby incorporated by reference in this document.
Commercial and Industrial (Article 5) Schedule:
II - Valuation and qualifying accounts
All other schedules are omitted as they are not applicable, or the information
required is included in the financial statements or notes thereto.
SCHEDULE II
Valuation and Qualifying Accounts
Year ended December 31, 1996, 1995 and 1994
Additions
Balance at charged to Deductions, Balance
beginning costs and net of at end
(in millions) of period expenses recoveries of period
1996
Allowance for Losses on:
Accounts Receivable $ 90 $ 73 $ 71 $ 92
Finance Receivables 322 186 161 347
Deferred Tax Valuation
Allowance 20 - 20 -
$432 $259 $252 $439
1995
Allowance for Losses on:
Accounts Receivable $ 79 $ 81 $ 70 $ 90
Finance Receivables 320 154 152 322
Deferred Tax Valuation
Allowance 34 - 14 20
$433 $235 $236 $432
1994
Allowance for Losses on:
Accounts Receivable $ 62 $ 70 $ 53 $ 79
Finance Receivables 300 132 112 320
Deferred Tax Valuation
Allowance 34 - - 34
$396 $202 $165 $433
Index of Exhibits
Document and Location
(3) (a) Restated Certificate of Incorporation of Registrant filed by the
Department of 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.
(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 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.
(b) 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.
(c) Indenture dated as of September 20, 1996 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
Statement No. 333-13179.
(d) Indenture dated as of March 1, 1988, as supplemented by the First
Supplemental Indenture dated as of July 1, 1988, between Xerox
Credit Corporation (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.
(e) 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.
(f) 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.
(g) Indenture dated as of May 1, 1994, between XCC and State Street
Bank and Trust Company (formerly, 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.
(h) Indenture dated as of October 2, 1995, between XCC and State
Street Bank and 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. 33-61481.
(i) 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
1997 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 1996 Non-Employee Director Stock Option Plan.
Incorporated by reference to Registrant's Notice of the 1996
Annual Meeting of Shareholders and Proxy Statement pursuant to
Regulation 14A.
*(d) Description of Registrant's Annual Performance Incentive Plan.
*(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) 1996 Restatement of Registrant's Unfunded Supplemental Retirement
Plan.
(g) 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.
(h) 1996 Amendment and Restatement of Registrant's Restricted Stock
Plan for Directors.
Incorporated by reference to Registrant's Notice of the 1996
Annual Meeting of Shareholders and Proxy Statement pursuant to
Regulation 14A.
*(i) Form of severance agreement 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.
*(j) 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.
(k) 1996 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, 1995.
*(l) 1993 Amendment and Restatement of Registrant's 1989 Deferred
Compensation Plan for Executives.
*(m) Executive Performance Incentive Plan.
Incorporated by reference to Registrant's Notice of the 1995
Annual Meeting of Shareholders and Proxy Statement pursuant to
Regulation 14A.
(11) Statement re computation of per share earnings.
(12) Computation of Ratio of Earnings to Fixed charges.
(13) Pages 26 through 71 of Registrant's 1996 Annual Report
to Shareholders.
(21) Subsidiaries of the Registrant.
(23) Consent of KPMG Peat Marwick LLP.
(27) Financial Data Schedule (in electronic form only).