Revenues 1999 1998 1997

Sales 10,346 10,696 9,881

Service and rentals 7,856 7,678 7,257
Finance income 1,026 1,073 1,006
Total revenues 19,228 19,447 18,144

Costs and expenses

Cost of sales 5,744 5,662 5,330
Cost of service and rentals 4,481 4,205 3,778
Inventory charges 0 113 0
Equipment financing interest 547 570 520
Research and development expenses 979 1,040 1,065
Selling, administrative, and general expenses 5,144 5,321 5,212
Restructuring charge and asset impairments 0 1,531 0
Other, net 297 242 98

Total Costs And Expences 17,192 18,684 16,003

IBIT, equity income, and minority interests 2,036 763 2,141

Income taxes 631 207 728

Equity in net income of unconsolidated affiliates 68 74 127
Minority interests in earnings of subsidiaries 49 45 88

Actual Income from continuing operations 1,424 585 1,452

Calcultion 1,424 585 1,452

Discontinued operations 0 -190 0

Net income 1,424 395 1,452
Cash flows from operating activities

Income from continuing operations

Adjustments:
D&A
Provision for doubtful accounts
Restructuring charge and other charges
Provision for postretirement medical benefits, net of payments
Cash charges against 1998 restructuring reserve
Minorities' interests in earnings of subsidiaries
Undistributed equity in income of affiliated companies
Decrease (increase) in inventories
Increase in on-lease equipment
Increase in finance receivables
Proceeds from securization of finance receivables
Increase
(Decrease) in increase
accountsinreceivable
accounts payable and
accrued compensation
Net change in other current and benefit costs
and noncurrent
liabilities
Change in current and deferred income taxes
Other, net

Total Operations

Cash flows from investing activities

Cost of additions to land, buildings, and equipment
Proceeds from sales of land, buildings, and equipment
Acquisitions, net of cash acquired
Other, net

Total Investing

Peruse the statements and footnotes. What questions arise about the quality of the earnings reported in 1998 and
 1999 1998 1997

1,424 585 1,452

935 821 739

359 301 265
0 1,644 0
41 33 29
-437 -332 0
49 45 88
-68 -27 -84
68 -558 -170
-401 -473 -347
-1,788 -2,169 -1,629
1,495 0 0
-94 -540 -188
-94 127 250
277 -192 361
-78 67 83
-464 -497 -377

1,224 -1,165 472

-594 -566 -520

99 74 36
-107 -380 -812
-25 5 45

-627 -867 -1251

arnings reported in 1998 and 1999?

 Severance and related costs
Asset impairment
Lease cancellation and other costs
Inventory charges

Total

2 Restructuring

In 1998, we announced a worldwide restructuring program intended to enhance our

competitive position and lower our overall cost structure. In connection with this program,
we
recorded a pretax provision of $1,644. The program includes the elimination of
approximately 9,000 jobs, net, worldwide, the closing and consolidation of facilities, and the
writedown of certain assets. The charges associated with this restructuring program include
$ I 13
of inventory charges recorded as cost of revenues and $316 of asset impairments. Included
in the asset impairment charge is facility fixed asset write-downs of $156 and other asset
writedowns of$160. Key initiatives of the restructuring include:

1) Consolidating 56 European customer support centers into one facility and implementing a
shared services organization for back-office operations.
2) Streamlining manufacturing, logistics, distribution, and service operations. This will include
centralizing U.S. parts depots and outsourcing storage and distribution.

3) Overhauling our internal processes and associated resources, including closing one of
four geographically organized U.S. customer administrative centers.

The reductions are occurring primarily in administrative functions, but also impact service,
research, and manufacturing.
The following table summarizes the status of the restructuring reserve (in millions of
dollars):
 Charges
Total Against 12/31/1999
Reserve Balance
Reserve
1017 717 300
316 316 0
198 104 94
113 113 0

1644 1250 394

Finance receivables result from installment sales and sales-type
leases arising from the marketing of our business equipment
products. These receivables generally mature over two to five
years and are typically collateralized by a security interest in the
underlying assets. The components of finance receivables, net at
December 31 , 1999, 1998, and 1997 follow:

1999 1998 1997

Gross receivables 14666 16,139 14094
Unearned income -1,677 -2,084 -1,909
Unguaranteed residual values 752 699 557
Al lowance for doubtful accounts -423 -441 -389
Finance receivables, net 13318 14313 12353
Less current portion 5,115 5,220 4,599
Amounts due after one year, net 8,203 9,093 7,754
The components of inventories at December 31, 1999, 1998, and 1997 follow:

1999 1998 1997

Finished goods 1800 1923 1549
Work in process 122 111 97
Raw materials 363 464 406
Equipment on operating leases, net 676 771 740
Inventories 2961 3269 2792
Investments in Affiliates, at Equity

Investments in corporate joint ventures and other c ompanies in which we generally have a 20 to 50 percent owner

1999 1998 1997

Fuji Xerox 1513 1354 1231
Other investments 102 102 101
Investments in affiliates, at equity 1615 1456 1332

Xerox Limited owns 50 percent of the outstandin g stock

of Fuji Xerox, a corporate joint venture with Fuji Photo
Film Co. Ltd. (Fuji Photo) . Fuji Xerox is headquartered in
Tokyo and operates in Japan and other areas of the Pacific
Rim, Australia, and New Zealand, except for China.
Condensed financial data of Fuji Xerox for its last three
fiscal years follow:

Summary of operations 1999 1998 1997

Revenues 7,751 6,809 7,415
Costs and expenses 7,440 6,506 6,882
Income before income taxes 311 303 533
Income taxes 201 195 295
Net income 110 108 238

Balance sheet data 1999 1998 1997

Current assets 3521 2760 2461
Noncurrent assets 3521 3519 2942
Total assets 7042 6279 5403

Liabilities and shareholders' equity

Current liabilities 2951 2,628 2,218
Long-term debt 169 101 286
Other noncurrent liabilities 1079 1,028 679
Shareholders' equity 2843 2,522 2,220
Total 7042 6279 5403
a 20 to 50 percent ownership interest at December 3 1, 1999, 1998, and 1997 follow:
Our reportable segments are as follows: Core Business, Fuji Xerox, Paper and Media, and Other

Core Fuji Paper and

Other
Business Xerox Media
1999
Information about profit or loss
Revenues from external customers 15224 0 1148 1830
Finance income 1016 0 0 10
lntercompany revenues -206 0 0 206

Total segment revenues 16034 0 1148 2046

D&A 930 0 0 5
Interest expense 803 0 0 0
Segment profit (loss) 2,014 0 62 -40
Earnings of nonconsolidated affiliates 13 55 0 0

Information about assets

Investments in nonconsolidated affiliates 102 1513 0 0
Total assets 25319 1513 86 1896
Capital expenditures 580 0 0 14