-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Cpvj+kFGa46AG1zWYhTTKQR7UNxDSUkm1SmrQTRP26Fp+YwV5WPyM872ajEQmniu ub0KUO7IB/RNtq7NGjiJZQ== 0000108772-01-500006.txt : 20010629 0000108772-01-500006.hdr.sgml : 20010629 ACCESSION NUMBER: 0000108772-01-500006 CONFORMED SUBMISSION TYPE: 11-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010628 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XEROX CORP CENTRAL INDEX KEY: 0000108772 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 160468020 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 11-K SEC ACT: SEC FILE NUMBER: 001-04471 FILM NUMBER: 1669420 BUSINESS ADDRESS: STREET 1: 800 LONG RIDGE RD STREET 2: P O BOX 1600 CITY: STAMFORD STATE: CT ZIP: 06904-1600 BUSINESS PHONE: 2039683000 MAIL ADDRESS: STREET 1: 800 LONG RIDGE ROAD STREET 2: PO BOX 1600 CITY: STAMFORD STATE: CT ZIP: 06904 FORMER COMPANY: FORMER CONFORMED NAME: HALOID XEROX INC DATE OF NAME CHANGE: 19730813 11-K 1 form11kpssp2000.txt FORM 11-K PROFIT SHARING & SAVINGS PLAN SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 11-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended: December 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ________________ to _____________ Commission File Number 1-4471 A. Full title of the plan and address of the plan, if different from that of the issuer named below: XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: Xerox Corporation P.O. Box 1600 Stamford, Connecticut 06904-1600 THE PLAN. Pursuant to the requirements of the Securities Exchange Act of 1934, the person who administer the plan have duly caused this actual report to be signed on its behalf by the undersigned who thereunto duly authorized. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Lawrence Becker Plan Administrator Stamford, Connecticut Dated June 28, 2001 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Financial Statements and Schedule December 31, 2000 and 1999 (With Independent Auditors' Report Thereon) XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Statement of Net Assets Available for Plan Benefits December 31, 2000 and 1999 (In thousands) 2000 1999 Assets: Investment in Master Trust $ 3,281,373 3,468,763 Participant notes receivable 84,400 86,788 Total assets $ 3,365,773 3,555,551 The accompanying notes are an integral part of the financial statements. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Statement of Changes in Net Assets Available for Plan Benefits Years ended December 31, 2000 and 1999 (In thousands) 2000 1999 Contributions: Employer $ 2,424 -- Employees' - voluntary 174,734 158,590 Rollovers from external plans 14,760 27,959 Rollovers from internal plans 199,600 163,734 Transfer from Tektronix 123,364 -- Total contributions 514,882 350,283 Net (loss)/income from Master Trust investments, net of administrative expenses (401,216) 49,785 Interest income on participant notes receivable 7,645 7,751 Total 121,311 407,819 Benefit Payments (323,486) (230,504) Transfers between plans 16,045 -- Transfers out to DPIX and Contentguard (3,648) -- Net increase/(decrease) in net assets available for plan benefits (189,778) 177,315 Net Assets available for plan benefits: Beginning of year 3,555,551 3,378,236 End of year 3,365,773 3,555,551 The accompanying notes are an integral part of the financial statements. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 (1) Description of Plan and Summary of Significant Accounting Policies The following description of the Xerox Corporation Profit Sharing and Savings Plan (Plan) provides only general information. Participants should refer to the summary plan description and the Plan document for a more complete description of the Plan's provisions. (a) General The Plan is a defined contribution plan covering substantially all full and part-time U.S. employees of Xerox Corporation (sponsor) and participating subsidiaries, except those covered by a collective bargaining agreement unless that agreement calls for participation in the Plan. Employees are automatically eligible to participate in the 401(k) savings portion of the Plan upon date of hire. (b) Plan Amendment In January 2001, the Xerox Corporation Profit Sharing and Savings Plan was amended to eliminate the cash/deferred component of profit sharing (see note 1(e) for further discussion). The Plan has been renamed the Xerox Corporation Savings Plan. Effective January 1, 2000, all employees of Tektronix pursuant to the terms of the Asset Purchase Agreement dated September 22, 1999 will receive credit for all hours of service for periods when employed by Tektronix for purposes of determining eligibility under the Plan. As of January 1, 2000, all assets of the accounts held under Tektronix 401(k) Plan for each participating employee were transferred to this plan. (c) Payments of Benefits Upon termination of service, a participant may elect to receive either a lump sum amount equal to the value of his or her account, or may purchase an annuity payable from a life insurance company. There were no benefits allocated from the Plan for participants at December 31, 2000 and 1999. (d) Employee Savings Contributions Subject to limits imposed by the Internal Revenue Code, eligible employees may contribute up to 18% of pay (as defined in the Plan) through a combination of before-tax and after-tax payroll deductions. Employees are immediately vested in their savings contributions. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 (e) Xerox Profit Sharing Contribution A profit sharing payout has two components. They are as follows:(i) 50% of the payout will come in the form of cash which can be deferred to the 401(k) savings portion of the plan, and (ii) 50% of the payment is provided in the form of stock options which are not a component of this Plan. Employees are immediately vested in profit sharing contributions. The maximum profit sharing payout will be 15%. In any given year, the payout bears a one-to-one relationship to earnings per share (EPS) growth up to 15%. However, if EPS growth is below 5%, there is no payment. For the calendar year ended December 31, 2000 and 1999, the sponsor's EPS growth was below 5%. In accordance with the plan document, there was no Xerox Profit Sharing contribution for 2000 and 1999. Effective January 1, 2001, the Company has eliminated the cash payment component for any future profit sharing contributions. (f) Investment Funds As further described in note 3, the investment funds are part of the Xerox Trust Agreement to Fund Retirement Plans (Master Trust). Employees can direct their plan accounts to one or more of the following ten investment funds: International Stock Fund - Invests primarily in stocks of companies outside the U.S. U.S. Stock Fund - Invests primarily in stocks of medium to large U.S. companies. Small Company Stock Fund - Invests primarily in stocks of smaller U.S. companies. Balanced Fund - Fifty/Fifty- Usually invests approximately 50% in stocks and 50% in bonds; some private placements and cash. The mix may shift with the market outlook. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 Balanced Fund - More Bonds - Usually invests 30% in stocks, most of the rest in bonds, some private placements and cash. The mix may shift with market outlook. Balanced Fund - More Stocks - Usually invests approximately 70% in stocks, most of the rest in bonds, some private placements and cash. The mix may shift with market outlook. Enhanced Bond Fund - Invests in bonds with an average intermediate duration; approximately 70% high quality bonds, and 30% high-yield lower quality bonds. Income Fund - Invests in short to intermediate duration, high quality bonds. Xerox Stock Fund - Invests in Xerox Corporation common stock and some cash for administrative purposes. Marketplace Window- Offers access to no-load mutual funds outside of Xerox funds. (g) Employee Loan Fund Participants are permitted to borrow from their profit sharing savings accounts subject to certain limitations. The loans are payable over terms up to 14.5 years and bear interest at the quarterly Citibank commercial prime rate in effect at the time of loan issuance plus 1%. Principal and interest payments on the loans are redeposited into the participants' accounts based on their current investment allocation elections. At December 31, 2000 and 1999, market value of loans approximates fair value. (h) Summary of Significant Accounting Policies a. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. b. If available, quoted market prices are used to value investments. Non- readily marketable investments are carried at estimated fair value. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 c. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Derivative investments are marked to market on a daily basis which is reported as margin variation on futures contracts in the statement of changes in net assets of the Master Trust. (2) Federal Income Taxes The Plan obtained its latest determination letter from the Internal Revenue Service (IRS) on March 31, 1998, covering Plan amendments through March 31, 1997, indicating that the Plan, as designed, was in compliance with the applicable requirements of the Internal Revenue Code. The Plan administrator and Plan's internal tax counsel believe that the Plan, as currently designed and operated, is in compliance with the applicable requirements of the Internal Revenue Code. Accordingly, they believe that the Plan was qualified and the related trust was tax-exempt as of the financial statement date. As long as the Plan continues to be qualified under present Federal income tax laws and regulations, participants will not be taxed on company contributions or on investment earnings on such contributions at the time such contributions and investment earnings are received by the trustee under the Plan, but may be subject to tax thereon at such time as they receive distributions under the Plan. (3) Master Trust As discussed in note 1, the Plan participates in the Master Trust. The following other Xerox employee benefit plans also participate in the Master Trust as of December 31, 2000: The Profit Sharing Plan of Xerox Corporation and The Xerographic Division, Union of Needletrades, Industrial and Textile Employees, A.F.L. - C.I.O. - C.L.C.; Xerox Corporation Retirement Income Guarantee Plan; and Retirement Income Guarantee Plan of Xerox Corporation and The Xerographic Division, Union of Needletrades, Industrial and Textile Employees, A.F.L. - C.I.O. - C.L.C. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 At December 31, 2000, the Master Trust has eight investment pools - the International Stock Pool, U.S. Stock Pool, Small Company Stock Pool, Other Equity Pool, Income Fund, Bond Pool, Xerox Stock Fund, and Marketplace Window. Participants direct their accounts into investment funds, as described in note 1, which participate in the aforementioned investment pools. Each of the plans has an ownership interest in one or more of these investment pools in accordance with that interest as determined by participant fund elections. The Expense Pool represents net accrued, plan specific administrative expenses that are attributable to the Other Equity Pool and the Bond Pool, which comprise the Balanced Fund. It is not an investment pool. In September 2000, there was a pool restructure. Assets of the Other Fixed Pool were transferred to the Bond Pool. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements, December 31, 2000 and 1999 The following financial information is presented for the Master Trust and each of the Master Trust investment pools: Statement of Net Assets of the Master Trust as of December 31, 2000 is as follows (in thousands): Small International Company Stock U.S. Stock Stock Income Assets Pool Pool Pool Fund Cash (overdraft) $ 13,229 1,840 (1,067) 188 Receivables: Dividends 1,496 1,672 511 -- Interest 261 352 199 6,357 Due from brokers 900,520 8,791 6,470 2,011 Other 163 -- 5 -- Total receivables 902,440 10,815 7,185 8,368 Investments at fair value: At quoted market value: Short-term investments 66,459 52,627 46,281 114,524 Fixed income investments 1,979 -- 1,905 740,552 Equity securities: Xerox common stock -- -- -- -- Other 1,093,609 2,643,203 752,361 11,808 At estimated fair value: Interest in real estate trusts -- -- -- -- Other investments -- -- -- -- Total investments 1,162,047 2,695,830 800,547 866,884 Total assets 2,077,716 2,708,485 806,665 875,440 Liabilities Due to brokers (901,827) (13,039) (5,036) (161,882) Other (2,047) (1,604) (855) (337) Net assets $ 1,173,842 2,693,842 800,774 713,221 Xerox Other Stock Equity Marketplace Bond Fund Pool Window Pool Total -- (1,216) -- (3,342) 9,632 1,329 60 -- 146 5,214 25 833 -- 26,772 34,799 -- 1,217 4,737 115,164 1,038,910 -- -- -- -- 168 1,354 2,110 4,737 142,082 1,079,091 3,853 95,384 -- 117,185 496,313 -- -- -- 2,388,431 3,132,867 133,329 -- -- -- 133,329 -- 121,815 270,330 119,561 5,012,687 -- 2,336 -- -- 2,336 -- 467,956 -- -- 467,956 137,182 687,491 270,330 2,625,177 9,245,488 138,536 688,385 275,067 2,763,917 10,334,211 (21) -- (3,962) (462,159) (1,547,926) (208) (201) -- (1,560) (6,812) 138,307 688,184 271,105 2,300,198 8,779,473 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 The following financial information is presented for the Master Trust and each of the Master Trust investment pools: Statement of Net Assets of the Master Trust as of December 31, 1999 is as follows (in thousands): Small International Company Stock U.S. Stock Stock Income Assets Pool Pool Pool Fund Cash (overdraft) $ (230) 2 2 (68) Receivables: Dividends 1,316 1,645 255 -- Interest 220 574 338 7,653 Due from brokers 2,231 261 4,171 10,115 Other 80 -- -- -- Total receivables 3,847 2,480 4,764 17,768 Investments at fair value: At quoted market value: Short-term investments 67,026 115,890 146,755 106,070 Fixed income investments 2,102 -- -- 774,937 Equity securities: Xerox common stock -- -- -- -- Other 1,379,984 2,990,177 683,719 3,852 At estimated fair value: Interest in real estate trusts -- -- -- -- Other investments -- -- -- -- Total investments 1,449,112 3,106,067 830,474 884,859 Total assets 1,452,729 3,108,549 835,240 902,559 Liabilities Due to brokers (11,121) (2,311) (4,159) (128,244) Other (1,970) (1,662) (702) (468) Net assets $ 1,439,638 3,104,576 830,379 773,847 Xerox Other Other Stock Equity Fixed Marketplace Bond Fund Pool Pool Window Pool Total -- -- -- -- 38,086 37,792 3,697 -- -- -- -- 6,913 38 674 216 -- 20,876 30,589 -- -- -- 1,891 52,405 71,074 -- -- -- -- -- 80 3,735 674 216 1,891 73,281 108,656 8,059 166,235 52,809 -- 147,207 810,051 -- -- -- -- 1,875,604 2,652,643 427,828 -- -- -- -- 427,828 -- 145,046 -- 161,843 70,755 5,435,376 -- 3,505 -- -- -- 3,505 -- 340,264 -- -- -- 340,264 435,887 655,050 52,809 161,843 2,093,566 9,669,667 439,622 655,724 53,025 163,734 2,204,933 9,816,115 -- (133) -- (1,649) (220,434) (368,051) (43) (297) (167) -- (1,463) (6,772) 439,579 655,294 52,858 162,085 1,983,036 9,441,292 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 Investment in Master Trust for all participating plans as of December 31, 2000 and 1999 is as follows (in thousands): 2000 1999 Xerox Corporation Profit Sharing and Savings Plan $ 3,281,373 3,468,763 The Profit Sharing Plan of Xerox Corporation and The Xerographic Division, Union of Needletrades, Industrial and Textile Employees, A.F.L. - C.I.O. - C.L.C. 214,941 252,168 Xerox Corporation Retirement Income Guarantee Plan 4,802,628 5,159,922 Retirement Income Guarantee Plan of Xerox Corporation and The Xerographic Division, Union of Needletrades, Industrial And Textile Employees, A.F.L. -C.I.O. - C.L.C. 480,531 560,439 Total $ 8,779,473 9,441,292 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 Statement of Changes in Net Assets of the Master Trust for the year ended December 31, 2000 is as follows (in thousands): Small International Company Stock U.S. Stock Stock Income Pool Pool Pool Fund Additions: Transfers in $ 50,975 106,581 88,053 235,391 Investment earnings: Interest 2,637 5,844 2,895 46,488 Dividends 17,089 22,238 3,184 571 Net appreciation (depreciation) (222,049) (251,994) 23,849 8,678 Margin variation on futures contracts (238) (2,743) (971) (319) Other (13,498) 836 753 (103) Total investment earnings (216,059) (225,819) 29,710 55,315 Total additions (165,084) (119,238) 117,763 290,706 Deductions: Administrative expenses (10,024) (9,039) (4,345) (1,856) Transfers out (73,130) (159,457) (64,123) (349,476) Total deductions (83,154) (168,496) (68,468) (351,332) Transfer between fund/pool (17,558) (123,000) (78,900) -- Net assets: Beginning of year 1,439,638 3,104,576 830,379 773,847 End of year $ 1,173,842 2,693,842 800,774 713,221 Xerox Other Other Stock Equity Fixed Marketplace Bond Expense Fund Pool Pool Window Pool Pool Total 174,473 -- -- 239,382 18,165 -- 913,020 453 2,612 2,283 -- 109,564 -- 172,776 13,499 9,635 -- 19,935 3,854 -- 90,005 (406,949) 410,854 868 (66,301) 50,032 -- (453,012) -- (4,669) 403 -- (2,414) -- (10,951) (12) 12,109 -- 15 2,628 -- 2,728 (393,009) 430,541 3,554 (46,351) 163,664 -- (198,454) (218,536) 430,541 3,554 193,031 181,829 -- 714,566 (447) (2,529) 55 (263) (7,798) (1,785) (38,031) (82,289) (367,465) (91,553) (83,748) (68,898) 1,785 (1,338,354) (82,736) (369,994) (91,498) (84,011) (76,696) -- (1,376,385) -- (27,657) 35,086 -- 212,029 -- -- 439,579 655,294 52,858 162,085 1,983,036 -- 9,441,292 138,307 688,184 -- 271,105 2,300,198 -- 8,779,473 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 Statement of Changes in Net Assets of the Master Trust for the year ended December 31, 1999 is as follows (in thousands): Small International Company Stock U.S. Stock Stock Income Pool Pool Pool Fund Additions: Transfers in $ 90,431 155,074 46,723 154,653 Investment earnings: Interest 1,625 6,862 2,424 51,889 Dividends 19,430 27,271 3,499 168 Net appreciation (depreciation) 336,067 544,823 203,930 (22,348) Margin variation on futures contracts (385) (6,508) (2,146) 633 Other 1,296 823 376 889 Total investment earnings 358,033 573,271 208,083 31,231 Total additions 448,464 728,345 254,806 185,884 Deductions: Administrative expenses (8,744) (8,684) (3,333) (2,323) Transfers out (95,513) (125,724) (71,348) (346,863) Total deductions (104,257) (134,408) (74,681) (349,186) Transfer between fund/pool 13,952 (495,000) (31,000) -- Net assets: Beginning of year 1,081,479 3,005,639 681,254 937,149 End of year $ 1,439,638 3,104,576 830,379 773,847 Xerox Other Other Stock Equity Fixed Marketplace Bond Expense Fund Pool Pool Window Pool Pool Total 418,469 794 12,398 150,408 36,210 -- 1,065,160 610 7,461 8,786 -- 76,242 -- 155,899 10,769 3,682 -- 5,519 2,045 -- 72,383 (456,299) 210,313 (20,000) 25,002 (52,983) -- 768,505 -- (15,280) (1,719) -- 261 -- (25,144) (10) 26,733 3 -- 1,699 -- 31,809 (444,930) 232,909 (12,930) 30,521 27,264 -- 1,003,452 (26,461) 233,703 (532) 180,929 63,474 -- 2,068,612 (660) (1,482) (798) (48) (6,442) (1,813) (34,327) (177,059) (563,105) (782) (38,592) (33,879) -- (1,452,865) (177,719) (564,587) (1,580) (38,640) (40,321) (1,813) (1,487,192) -- 291,588 (105,500) -- 325,000 1,885 925 643,759 694,590 160,470 19,796 1,634,883 (72) 8,858,947 439,579 655,294 52,858 162,085 1,983,036 -- 9,441,292 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 Net income (loss) from Master Trust Investments, net of administrative expenses for all participating plans as of December 31, 2000 and 1999 is as follows (in thousands): 2000 1999 Xerox Corporation Profit Sharing and Savings Plan $ (401,216) 49,785 The Profit Sharing Plan of Xerox Corporation and The Xerographic Division, Union of Needletrades, Industrial and Textile Employees, A.F.L. - C.I.O. - C.L.C. (31,583) (12,561) Xerox Corporation Retirement Income Guarantee Plan 176,557 840,877 Retirement Income Guarantee Plan of Xerox Corporation and The Xerographic Division, Union of Needletrades, Industrial And Textile Employees, A.F.L. - C.I.O. - C.L.C. 19,757 91,024 Total $ (236,485) 969,125 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 Master Trust investments are managed by selected investment managers under the direction of the Treasurer of Xerox Corporation. The Finance Committee of the Xerox Corporation Board of Directors is responsible for establishing investment objectives and policies, reviewing the investment decisions of the Treasurer and reviewing the investment results of the Master Trust. The Finance Committee of the Xerox Corporation Board of Directors consists, at present, of six members of the Xerox Corporation Board of Directors, none of whom are officers of Xerox Corporation. Marketable securities are valued at the last reported sales price on the last business day of the year. Quotations are obtained from national securities exchanges or, in instances where securities are not listed on any of the exchanges, quotations are obtained from brokerage firms. Non-readily marketable investments, which include private placements, are carried at fair value, based upon the cost of the investments, developments concerning the portfolio investments of the private placements, and other factors as the managing general partners of these investments may deem relevant. Private placement investments are valued by the investment manager general partner on a periodic basis and these values are reflected in the Plans as they are received from the Trustee. The valuations do not necessarily represent amounts which might ultimately be realized from the investments. At December 31, 2000 and 1999, the Master Trust held no investment contracts with insurance companies or banks. The Master Trust invests in real estate group trusts. These trusts provide pension and profit sharing plans with a medium for pooling their funds for investment in income producing real estate. The investment trusts value real estate holdings at estimated market value based upon independent appraisals, consideration of significant changes in economic circumstances, and capital additions made to properties after the appraisal date. Such market value estimates necessarily involve subjective judgments. Accordingly, the actual market price of the real estate can only be determined by negotiation between independent third parties in a sales transaction. Purchases and sales of securities are recorded on a trade date basis. Dividend income is record on the ex-dividend date. Interest income is recorded as earned. Margin variation represents market fluctuations on futures investments. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 Derivative financial instruments are used by the Master Trust's equity and balanced portfolio investment managers primarily to alter the fixed income/equity allocation of the Master Trust's portfolio and to hedge the currency risk component of the Master Trust's foreign investments. Certain of the Master Trust's fixed income investment managers are permitted to use certain specified types of derivative instruments as part of their respective strategies. These strategies include the use of swap agreements and exchange traded futures and options as substitutes for certain types of fixed income securities. Leveraging of the Master Trust's assets and speculation are prohibited. Currency hedge positions are not permitted to exceed the level of exposure in the related Master Trust's assets. The derivatives most commonly used by the investment managers are highly liquid exchange traded equity and fixed income futures and over-the-counter foreign exchange forward contracts. The use of derivative instruments is not believed to materially increase the credit or market risk of the Master Trust's investment. The carrying amount and estimated fair value of derivative financial instruments at December 31, 2000 and 1999 is $1,193,850,000 and $1,192,720,000, respectively. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 133 requires that an entity recognize all derivatives and measure those instruments at fair value. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. Pursuant to SFAS No. 137, the Plan is required to adopt SFAS No. 133 effective January 1, 2001. Management will determine the impact of SFAS No. 133 on the Plan financial statements for 2001. XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 The net appreciation (depreciation) of investments for the year ending December 31, 2000 is as follows (in thousands): Small International Company Stock U.S. Stock Stock Income Pool Pool Pool Fund Investments at quoted market value: Short-term and fixed income investments $ (314) -- -- 8,678 Xerox common stock -- -- -- -- Other equity investments (221,735) (251,994) 23,849 -- Investments at estimated fair value: Interest in real estate trusts -- -- -- -- Other investments -- -- -- -- Total $ (222,049) (251,994) 23,849 8,678 Xerox Other Other Stock Equity Fixed Marketplace Bond Fund Pool Pool Window Pool Total -- -- 868 -- 51,506 60,738 (406,949) -- -- -- -- (406,949) -- 48,974 -- (66,301) (1,474) (468,681) -- (1,169) -- -- -- (1,169) -- 363,049 -- -- -- 363,049 (406,949) 410,854 858 (66,301) 50,032 (453,012) XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Notes to Financial Statements December 31, 2000 and 1999 The net appreciation (depreciation) of investments for the year ending December 31, 1999 is as follows (in thousands): Small International Company Stock U.S. Stock Stock Income Pool Pool Pool Fund Investments at quoted market value: Short-term and fixed income investments $ 309 -- -- (22,348) Xerox common stock -- -- -- -- Other equity investments 335,758 544,823 203,930 -- Investments at estimated fair value: Interest in real estate trusts -- -- -- -- Other investments -- -- -- -- Total $ 336,067 544,823 203,930 (22,348) Xerox Other Other Stock Equity Fixed Marketplace Bond Fund Pool Pool Window Pool Total -- -- (20,000) -- (54,921) (96,960) (456,299) -- -- -- -- (456,299) -- 24,014 -- 25,002 1,938 1,135,465 -- (8,926) -- -- -- (8,926) -- 195,225 -- -- -- 195,225 (456,299) 210,313 (20,000) 25,002 (52,983) 768,505 XEROX CORPORATION PROFIT SHARING AND SAVINGS PLAN Schedule of Assets Held for Investment Purposes at End of Year December 31, 2000 (In thousands) Description of investment including maturity Identity of issue, date, rate of borrower, interest, collateral, Current lessor, or similar party par or maturity value Cost value Investment in Master (1) $ -- $ 3,281,373 Trust *Investment in Participant Loans to Plan participants, notes Receivable maturity dates through 5/31/12, interest rates from 8.0% to 11.5% -- 84,400 per annum * Party-in-interest (1)See note 1 Independent Auditors' Report The Plan Administrator and Participants Xerox Corporation Profit Sharing and Savings Plan: We have audited the accompanying statements of net assets available for plan benefits of The Xerox Corporation Profit Sharing and Savings Plan (Plan) as of December 31, 2000 and 1999, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of December 31, 2000 and 1999, and the changes in net assets available for plan benefits for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets held for investment purposes at December 31, 2000 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan's management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. June 5, 2001 Accountants' Consent The Board of Directors Xerox Corporation: We consent to incorporation by reference in the Registration Statements (No. 2- 86274 and No. 333-22059) on Form S-8 of Xerox Corporation of our report dated June 5, 2001, relating to the statement of net assets available for plan benefits of the Xerox Corporation Profit Sharing and Savings Plan as of December 31, 2000 and 1999, and the related statements of changes in net assets available for plan benefits for the years then ended and related schedule, which report appears in the December 31, 2000 Annual Report on Form 11-K of the Xerox Corporation Profit Sharing and Savings Plan. Rochester, New York June 28, 2001 -----END PRIVACY-ENHANCED MESSAGE-----