January 24, 2008 - NORWALK, Conn. - Xerox Corporation announced today fourth-quarter 2007 earnings per share of 41 cents. This compares to 22 cents from fourth-quarter 2006, which included a 16 cent per share restructuring charge. Excluding the charge, earnings per share for fourth-quarter 2007 is up 8 percent from the adjusted prior year EPS.

Total revenue of $4.9 billion grew 11 percent in the quarter with post-sale and financing revenue up 12 percent; this annuity stream represents about 70 percent of total revenue. Both total revenue and post-sale revenue included a currency benefit of 4 percentage points as well as the benefit from Xerox’s acquisition of Global Imaging Systems.

“Our growing annuity revenue and strong cash generation, along with our disciplined approach to controlling costs, result in consistent delivery of solid performance year after year,” said Anne M. Mulcahy, Xerox chairman and chief executive officer. “In 2007, we expanded earnings, grew revenue, generated $1.9 billion in operating cash flow, repurchased $631 million in Xerox shares and declared a dividend. As important, we fortified our leadership in the marketplace through increased distribution and innovative technology and document management services.

“Xerox operates in a global business environment, serving a wide range of markets with more than 50 percent of our revenue generated from customers outside the U.S.,” she added. “This worldwide reach and our effective business model -- combined with our competitive offerings and strong recurring revenues -- position us well to continue building value for shareholders. As a result, we remain committed to delivering on our 2008 full-year EPS guidance of $1.31 to $1.35, and we are increasing our guidance for full-year operating cash flow.”

The acquisition of Global Imaging Systems, which provides a broader distribution to small and mid-size businesses in the U.S., led to a 10 percent increase in equipment sales, including a 5 point benefit from currency. In 2007, Xerox introduced 39 products, more than twice the number of products it launched in 2006. More than two-thirds of Xerox’s equipment sale revenue comes from products launched in the past two years.

Revenue from color grew 14 percent in the fourth quarter and now represents 40 percent of Xerox’s total revenue, up 3 points from the fourth quarter of 2006. Xerox color devices print the highest volume of pages in the industry – producing more than 40 billion color pages in 2007, an increase of more than 30 percent from 2006. In the fourth quarter, the number of color pages grew 34 percent, and now represent 14 percent of total pages, up 4 points from the prior year. Color performance excludes Global Imaging Systems results.

Xerox services help businesses simplify work processes, manage office technology and in-house print shops, digitize paper files, create digital archives and much more. During 2007, Xerox Global Services generated $3.4 billion in annuity revenue, an 8 percent increase over 2006.

“As businesses shift to more color in the office and begin to see the cost benefits of simplifying their work processes, they’re turning to Xerox for our innovation and expertise. Our focus on color and document services is fueling our annuity stream and creating long-term value in our company,” said Mulcahy.

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 5 percent in the fourth quarter, including a 6 point currency benefit. Production color installs grew 3 percent. Installs of production black-and-white systems declined 10 percent. Demand for the Xerox Nuvera EA and Xerox Nuvera 288 digital presses as well as continuous feed systems only partially offset declines from other high-volume and light-production systems.

Through expanded channels of distribution and competitive offerings for businesses of any size, Xerox continues to drive the demand for color in the office with installs of color multifunction systems up 67 percent. Total office revenue was up 14 percent in the fourth quarter, including a 5 point benefit from currency. Installs of the company’s black-and-white multifunction devices increased 6 percent.

Gross margins were 40.5 percent, down about a half a point from the fourth quarter of 2006. Selling, administrative and general expenses were 24.3 percent of revenue, up 1 point from fourth-quarter 2006. The strength of Xerox’s annuity-based business model led to a significant increase in operating cash flow, generating $1 billion in the fourth quarter and $1.9 billion for the full year.

Since launching its stock buyback program in October 2005, Xerox has repurchased 137 million shares or 13 percent of outstanding shares. Earlier this week, Xerox’s Board of Directors authorized an additional $1 billion, adding to the remaining $370 million available for share repurchase.

Xerox expects first-quarter 2008 earnings in the range of 25 to 28 cents per share.

Full-Year 2007 Results

- Net income of $1.1 billion
- As reported, 2007 EPS of $1.19, compares to 2006 EPS of $1.22. On an adjusted basis, 2007 EPS of $1.19 compares to 2006 EPS of $1.05, an increase of 13 percent.
- Total revenue of $17.2 billion, an increase of $1.3 billion or 8 percent from full-year 2006, includes revenue generated from Global Imaging Systems, which Xerox acquired in May of 2007.
- Operating cash flow of $1.9 billion