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Xerox 2Q Revenue Up 8%, Color up 11%

Press release from the issuing company

NORWALK, Conn. July 24, 2008--Xerox Corporation announced today second-quarter earnings of 24 cents per share, including a previously announced restructuring charge of 5 cents per share.

Total revenue of $4.5 billion grew 8 percent in the quarter, including a 4 point benefit from currency. Post-sale revenue, which represents more than 70 percent of the company's total revenue, increased 10 percent. Equipment sale revenue was up 2 percent. The company's revenue includes the benefit of its acquisition of Global Imaging Systems in May 2007.

"Our annuity-based global business led to steady revenue growth this quarter along with earnings and cash in line with our expectations," said Anne M. Mulcahy, Xerox chairman and chief executive officer. "While the U.S. economy creates challenges for our business with large enterprises, we're seeing consistent positive performance in the small and mid-size business market, with strong results from our developing markets and Global Imaging operations. In addition, demand for our document services, which help customers reduce costs and improve productivity, is up this quarter. Strong revenue growth in these key areas does have an impact on gross margin, which we're offsetting with cost reductions and operational improvements that help deliver solid bottom-line results."

During the quarter, Xerox generated $442 million in operating cash flow. The company also repurchased $377 million in Xerox shares, and announced today that its board of directors authorized an additional $1 billion in share repurchase, bringing the total available authorization for share repurchase to $1.7 billion.

Xerox technology is accelerating the adoption of digital color printing in businesses and commercial print enterprises. Revenue from color grew 11 percent in the second quarter and represents 40 percent of Xerox's total revenue, up 2 points from the second quarter of 2007. Xerox color devices print the highest volume of pages in the industry – producing more than 25 billion pages in the first half of this year and more than 40 billion pages last year. In the second quarter, the number of color pages grew 28 percent, and now represent 16 percent of total pages, up 4 points from the prior year. Color performance excludes results from Global Imaging Systems.

Xerox document management services help businesses simplify work processes, manage office technology and in-house print shops, digitize paper files, create digital archives and much more. For the first half of 2008, Xerox Global Services generated nearly $1.8 billion in annuity revenue, up 8 percent from the prior year.

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 4 percent in the second quarter, including a 5 point currency benefit. Production color installs declined 12 percent in the second quarter largely due to the timing of new product introductions. In late May, Xerox launched six production color systems, with installs primarily beginning in the second half of this year. Production black-and-white systems declined 8 percent. Demand for the Xerox Nuvera  EA and Xerox Nuvera 288 digital presses 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 34 percent from the prior year. Total office revenue was up 9 percent in the second quarter, including a 4 point benefit from currency. Installs of the company's black-and-white multifunction devices increased 10 percent. During the second quarter, Xerox launched 12 multifunction systems and printers, competitively priced to meet the needs of workplaces small to large.

Accelerated growth in Xerox's developing markets continued in the second quarter with revenue up 19 percent, reflecting positive performance in all regions.

The effect of more revenue from developing markets and services as well as continued pricing investments resulted in a second quarter gross margin of 39.2 percent, down 1.1 points from the prior year. Selling, administrative and general expenses as a percent of revenue at 25.8 percent was about flat compared to the second quarter of 2007, while the company continued to make investments in marketing and sales coverage.

During the second quarter, Xerox made more progress in expanding distribution with the acquisition of Veenman B.V., the leading independent office technology distributor in the Netherlands, as well as Global Imaging's purchase of Saxon Business Systems, which gives Global Imaging even more scale in the U.S.

"We have the flexibility to be aggressive in the marketplace while delivering on our earnings expectations," added Mulcahy. "We're launching more competitively priced products than anyone else in our industry, growing our sales channels to reach more businesses of any size anywhere, and making marketing investments that drive installs of Xerox technology and fuel our healthy annuity stream."

Xerox expects third-quarter 2008 earnings in the range of 28 to 30 cents per share and maintains its full-year earnings expectations of $1.26 to $1.30 per share.