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Xerox Reports Q2 Earnings Fall

Wednesday, July 26, 2006

Press release from the issuing company

STAMFORD, Conn.--July 25, 2006-- Xerox Corporation announced today second-quarter 2006 earnings per share of 26 cents and total revenue of $4 billion. Total revenue grew 1 percent in the second quarter. Post-sale and financing revenue, which represents about 75 percent of Xerox's total revenue, increased 2 percent, largely driven by 4 percent post-sale growth from digital systems. Currency had a negligible impact on total and post-sale revenue. Xerox's strategy to boost revenue through annuity from color products and services contracts also contributed to post-sale growth with a 16 percent increase in color post-sale revenue and 5 percent post-sale growth from global services. Signings for document management services were up more than 15 percent in the quarter. "Our second-quarter performance reflects the positive track Xerox is on to grow revenue while remaining cost-effective and competitive," said Anne M. Mulcahy, Xerox chairman and chief executive officer. "Revenue is up - the benefit of increasing install rates of Xerox digital and color systems as well as continued demand for our document management services, all of which fuels our healthy annuity stream. Through a disciplined focus on costs and operational improvements, we increased gross margins and delivered solid bottom-line results. "During the second quarter, we also announced the acquisition of Amici LLC, an e-discovery company whose offerings strengthen our services portfolio. And, we repurchased $225 million more in Xerox stock, nearly completing the $1 billion program. Our financial strength allows us now to increase the buyback program by another $500 million. "This all adds up to consistent, steadily improving progress that delivers profitable returns and value for our shareholders," added Mulcahy. Revenue from Xerox's industry-leading color systems grew 14 percent in the second quarter and now represents 34 percent of total revenue. "The number of pages printed on Xerox color systems grew 40 percent in the quarter. Pages are the power of the annuity stream as the increasing volume of color pages flows through to post-sale revenue," said Mulcahy, noting that 44 percent of Xerox's equipment sales now come from color products, a 10 point increase from two years ago. The company recently expanded its color offerings with five new systems including the DocuColor 5000 mid-level digital production color press as well as a color printer, digital copiers and multifunction products aimed at offices small to large. Equipment sale revenue was flat in the quarter and down 1 percent in constant currency. Installs of key products like production color presses and WorkCentre multifunction systems drove up activity in the company's production and office businesses. Xerox's production business provides commercial printers and document-intensive industries with high-speed digital printing and services that enable on-demand, personalized printing. Total production revenue increased 1 percent in the second quarter and was flat in constant currency. Installs of production black-and-white systems increased 9 percent, reflecting the continued success of the Xerox 4110 light production system. Production color installs grew 96 percent as strong demand continued for the DocuColor 240/250 multifunction device, Xerox's entry production color system that prints, copies and scans. Xerox's office business provides document technology and services for businesses of any size. Total office revenue was up 1 percent and flat in constant currency. Installs of office black-and-white systems were down 4 percent with 12 percent growth from mid-range systems, which generate higher page volumes, only partially offsetting declines in desktop devices. In office color, installs of multifunction systems were up 13 percent driven by the continued success of the office version of the DocuColor 240/250 system. The company also cited continued improvement in its developing markets operations. Total revenue grew 7 percent in DMO. Gross margins were 41.1 percent, a year-over-year increase of 0.7 points and a nearly 1 point improvement from the first quarter of this year. The company's selling, administrative and general expenses were 25.6 percent of revenue, a year-over-year decline of 1.1 points. In the second quarter, Xerox generated operating cash flow of $220 million after contributing $226 million to its U.S. pension plans. The company closed the quarter with $1.2 billion in cash and short-term investments. Debt declined $1 billion year over year and about $600 million from the first quarter of this year. Through the first half of 2006, Xerox repurchased $895 million of its stock since launching the buyback program in October 2005. The company's board recently authorized the repurchase of another $500 million. Xerox expects third-quarter 2006 earnings in the range of 20-22 cents per share.




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