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Xerox Reports First Quarter Earnings

8 May, 2006

Xerox Reports First Quarter Earnings

STAMFORD, CT -- Xerox Corporation announced first-quarter 2006 earnings per share of 20 cents and total revenue of $3.7 billion.

Total revenue was impacted by 2 points of currency, contributing to a 2 percent decline. On a constant currency basis, total revenue was flat in the quarter. Equipment sale revenue declined 4 percent – down 2 percent in constant currency – offset by continued improvement from the company’s post-sale revenue stream. Post-sale and financing revenue, which represents about 75 percent of Xerox’s total revenue, declined 1 percent in the first quarter and grew 1 percent in constant currency. “Our steady improvement in post-sale revenue shows that Xerox’s business model is working. We also delivered solid product install growth, a more than 25 percent increase in signings for document management services, and 11 percent growth in revenue from Xerox color systems,” said Anne M. Mulcahy, Xerox chairman and chief executive officer. “For the past five years, we’ve been focused on building the install base of our digital document technology, especially color, and increasing demand for Xerox services. The post-sale revenue from this business generates a healthy annuity stream that fuels profitable growth.

“While encouraged by annuity growth, I am disappointed in our gross profit decline. This was largely due to increased costs and had a direct impact on our first-quarter earnings,” added Mulcahy. “We have consistently demonstrated excellent execution in controlling costs and are confident we’ll be back on track next quarter. We’ve identified the issues and are taking the right actions, right now to readjust our cost base in line with our business model.”

Gross margins were 40.2 percent, a year-over-year decrease of 1.6 points. The company’s selling, administrative and general expenses were 26.6 percent of revenue, a modest improvement from 26.8 percent in the first quarter of 2005.

Xerox’s production business provides commercial printers and document-intensive industries with high-speed digital technology and services that enable on-demand, personalized printing. Total production revenue declined 3 percent in the first quarter and was flat in constant currency. Installs of production black-and-white systems increased 8 percent, reflecting the success of the Xerox 4110 light production system, which was partially offset by install declines of high-end publishing systems. Earlier this month, the company announced new finishing features for the Xerox Nuvera™ digital production system. The company expects these features to help lift high-end production activity during the balance of the year. Production color installs grew 92 percent driven by increased demand for the DocuColor® 240/250 multifunction device, the company’s entry production color system that prints, copies and scans.

Xerox’s office business provides document technology and services for businesses of any size. Increased install activity for office systems was partially offset by declines in product pricing during the quarter. Total office revenue declined 1 percent and grew 1 percent in constant currency. Installs of office black-and-white systems were up 18 percent largely due to increased placements of Xerox’s new line of WorkCentre systems that print, copy, fax and scan. In office color, installs of multifunction systems were up 53 percent driven by the continued success of the office version of the DocuColor 240/250 systems. Install activity in color printers was up 4 percent.

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